Internet Uncertain In China

U.S. companies and investors are moving ahead with projects to tap China’s potentially vast Internet market despite the Chinese government’s threat to enforce a ban on foreign investment in Web-based ventures.

“There’s a lot of uncertainty on the table,” said James Yao, executive director of AsiaTech Ventures, which runs a $70 million venture capital fund focusing on Asia.

“I believe companies in China as well as the investment community are scrambling to realign their strategy as far as the Chinese Internet is concerned.”

On Sept. 14, China’s Information Industry Minister Wu Jichuan told reporters that China would begin enforcing a law prohibiting foreign ownership in Internet service companies, saying the government needed to strengthen control over information content.

Hugo Shong, an investment banker with Boston-based International Data Group, said it was unclear whether Wu was speaking of all Internet investment, or just service providers: those companies that control access to the medium.

Rapid growth of the Internet is causing concern among Chinese government officials, who fear foreign control over a significant new communications medium, said Greg Mastel, a China analyst and director of global economic policy at the New America Foundation in Washington.

A crackdown would hurt U.S. companies such as Intel and Web portal Lycos Inc., which are boosting their involvement in China.

China could become one of the biggest, and potentially most lucrative, markets for Internet traffic and electronic commerce over the next decade.