The rules, passed by China's cabinet two weeks ago and published in the official Xinhua Daily Telegraph on Monday, are sure to send shock waves through the country's fledgling Internet industry, which is heavily dependent on foreign capital.
By holding companies responsible for blocking vast categories of illegal content on their Web sites and chat rooms, the rules also illustrate Beijing's determination to contain the spread of ideas deemed dangerous to Communist Party rule.
The regulations ban any content that is ``subversive,'' that supports cults, that ``harms the reputation'' of China or that hurts reunification efforts with Taiwan, to name just some.
Internet content and service providers must keep records of all the content that appears on their Web sites and all the users who dial onto their servers for 60 days, and hand the records to police on demand, the rules state.
Existing commercial Internet sites have 60 days from October 1 to provide detailed information on their businesses to the Ministry of Information Industry in order to obtain licenses.
Companies without licenses and those exceeding their stated business scopes will be fined or shut down, the rules state.
Foreign investment takes a hit The clause on foreign investment poses one of the most immediate threats to commercial Web sites.
The rules state that Internet content providers must win the approval of the Ministry of Information Industry before they can receive foreign capital, cooperate with foreign businesses, or attempt domestic or overseas stock listings.
``The proportion of foreign investment must conform with relevant laws and administrative regulations,'' the rules state.
In an agreement with the United States last year paving the way to China's membership in the World Trade Organization (news - web sites), Beijing agreed to allow 49 percent foreign stakes in Internet companies upon WTO accession, rising to 50 percent in the second year after accession.
But scores of Chinese Internet content providers are funded almost entirely with foreign capital, and China has until now refrained from enforcing investment caps except when companies seek overseas stock listings.
The rules appear to extend the rules even to firms that have no ambitions for stock listings, and may spark a massive scramble among companies to restructure themselves.