Yahoo opens for business in China

BEIJING, 15 October 1999 - U.S. Internet company Yahoo!

BEIJING, 15 October 1999 - U.S. Internet company Yahoo! launched a joint venture Web site in Beijing on Friday despite an announced ban on foreign investment in China's online industry -- and a senior government official joined the launch party.

Industry analysts said the attendance of the official had sent a strong signal that the Yahoo! (Nasdaq:YHOO) venture with computer maker Founder had official blessing.

They said they were now more optimistic that hardline comments last week by Minister of Information Industry (MII) Wu Jichuan banning foreign participation in the market may not have the chilling effect once feared.

"There seems to be a degree of backpedalling going on," said Stephen McKeever, an Internet analyst for Lehman Brothers Asia in Hong Kong.

He said a 22 percent rise in Founder's share price on the Hong Kong stock exchange on Friday to HK$2.60 ($0.33) indicated that investors had regained confidence.

"The markets have told us that this issue has moved on," McKeever said.

In a further positive signal, Yahoo! executives said the Web site was hosted by China Telecom, which is under the MII.

Banned last week
Wu was quoted last week as saying foreign investment in Internet service and content providers was prohibited under Chinese law and the government would clean up "irregularities."

Yahoo! co-founder Jerry Yang said: "There are going to be clarifications and extensions of the current set of regulations, but certainly what we're proposing to do today is within the bounds of the law."

Foreigners have long been barred from investing in Chinese Internet service providers -- the companies which offer physical links to the world wide web.

But content providers like Yahoo!, which host "portals" or other Web sites offering news, e-mail and electronic commerce, fall into a regulatory grey area that has attracted overseas talent and capital to China's exploding Internet market.

Business as usual
Foreign-invested Web companies were rattled by Wu's remark, but most are continuing business as usual until the ministry clarifies its position.

The Yahoo! venture with Founder subsidiary Beijing Founder Electronics Co. includes a new Chinese-language portal -- -- packed with Chinese content.

The partners would also set up an online advertising company.

Yang declined to divulge the structure or price-tag of the joint venture.

MII Vice Minister Qu Weizhi, who joined Yang on stage at the Web site launch, declined to answer reporters' questions about the legality of the Yahoo! venture.

But one of her aides said: "They are carrying out their business through a trustee -- Founder."

"No company was set up inside China's border," he said.

However, Yahoo! International Senior Vice President Heather Killen said the venture was based in China and Yahoo! would invest in the project.

She said China's desire to regulate the Internet indicated great official interest in the rapidly growing industry, with more than four million Internet users in China, a number expected to more than double next year.

"This seems a very natural development and indicates that they are alive to the fact that this is going to be a very interesting and vibrant sector of the economy," she said.

"We look forward to further clarification of the government's position, and at that time we will be sure, through our partners here at Founder as well, to fully comply with the letter of the law," she said.