Wang Jianchao, head of the division of foreign economic and trade cooperation with the Department of Overall Planning under the Ministry of Information Industry (MII), said the consistent policies on foreign investors would remain the same, with qualified investors welcome to apply.

The ministry issued a circular on July 13, requiring all foreign companies operating value-added telecom services to apply for a licence, as many of them were running services without the proper paperwork.

Wang said that since then, 29 companies have applied for licences, and five including MSN China, have had them granted.

Another 14 firms have passed reviews, but Wang declined to say if Google China is among them.

The US search giant was reported to be borrowing an Internet content provider license from a local firm, which is believed to be illegal.

It later filed an application and Kaifu Lee, vice-president of Google, said the application was well on the way.

According to its commitment to the World Trade Organization in 2001, China will open its value-added telecom services and lift restrictions in the region.

To begin operating in the country foreign investors must form joint ventures with local firms, and their holding in the ventures not exceeding 50 percent.

However, it is believed many foreign companies find ways to operate without licences, such as by controlling local firms through licensing domain names, trademarks or technologies.

Peter Lu, a long-time Internet industry analyst, said these methods were traditional before the regulation on foreign investment was released in 2002, because Chinese Internet companies needed to list on overseas bourses, but there were no proper regulations in 2000 or 2001.

As more companies flooded into the market they followed the initial firms' example.

The government now wants to build a transparent system offering investors a true view of the industry.

As well as the notice requiring foreign investors to apply for licences, the government also requires domain names or trademarks to be held by the real operators, in effect making licensing illegal.

Although they can no longer hide behind local companies, foreign investors do have more choice about how they get their licences. They can buy a local firm which already holds a licence, or form a joint venture with a local firm, as Microsoft's MSN did.

Wang said the regulatory system remains the same as the 2002 regulations.

"It is true that the government wants to better regulate the market, but the impact on foreign investors should not be significant," said Lu.

(China Daily September 28, 2006)