Foreign Investors Are Cordially Reminded to Stay Away from Chinese Internet Cafes

Posted on November 12, 2007
Filed Under China Business, China Internet, China Law |

I came across an interesting, if brief, tidbit in a story about China’s National Development and Reform Commission’s new investment regulations (from the International Herald Tribune):

China’s economic planning agency has issued restrictions on foreign investment in real estate and other industries, part of a range of measures aimed at righting imbalances in the economy.

..Some restrictions are for illegal businesses, such as the processing of ivory and tiger bones. Others, such as a ban on foreign investment in Internet services and news Web sites, had been announced earlier.

Many match a list issued by the NDRC in 2004. The reissue of the rules suggests that some, like limits on foreign investment in real estate, were not adequately enforced.

A little more from the Age:

The new regulations also state that foreign companies will be banned from investing in news websites, internet audio-visual services and web cafes.

This is an “update” from the last round of restrictions in 2004. It’s certainly not surprising that news sites (and any “audio-visual” equivalents) would be a no-no: China’s media is subject to considerable government regulation and intervention.

But the internet cafe angle (thanks to the Age for not editing this out of the wire report) is more interesting. According to CNNIC’s 20th Internet Survey 37% of Chinese internet users access the web via internet cafes. That’s something like 600 million people.

And in China large consumer numbers make investors drool uncontrollably. I’ve read of a few franchises (who’s names I can’t remember), but Chinese internet cafes are usually of the mom and pop variety. There have been efforts over the years, usually in concert with a provincial or municipal governments, for international firms to access this market. Intel and HP have made the approach on the hardware side, usually in conjunction with a domestic PC or IT equipment firm.

China has been trying to control the growth of internet cafes for years. Whether that is due to concerns about the spread of unwanted information or students dropping dead from marathon online gaming sessions is unclear. What is clear is that an internationally owned chain of internet cafes would be dead on arrival.