Chinas Door Opens, Shuts Amid Agreement

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Telecommunications- and Internet-related companies sat up
and took notice last week when the United States and the People's Republic of China
reached an agreement for China's entry into the World Trade Organization.

The deal could open up both industry sectors in China.

The latest development is one of several that have opened
up the cable and telecommunications industries in some instances and closed them down in
others.

The deal could be waylaid by some expected lobbying efforts
in the United States. It could also be affected by the U.S. Congress, which is due to vote
on whether to end its yearly review of China's trade status, as well as whether to resume
normal trade relations with the country. And China's membership in the WTO is still
subject to the approval of some other countries that are members of the organization.

The agreement, signed by U.S. and Chinese trade negotiators
last week, would allow overseas investors to own as much as 49 percent of Chinese
telecommunications companies as soon as China gains WTO entry. That level would be lifted
to 50 percent after two years.

The proposed relaxation of regulations comes a few months
after China barred foreign investment in Internet-service providers and about one week
after the government indicated that it was drafting regulations that would have extended
the ban to cover providers of Internet content.

Such a switch in the government's stance has been felt by
other sectors within the media and telecommunications industries. And Non-Chinese
companies are not the only ones feeling the effects.

Until recently, China had begun allowing companies to sell
stock to the public. One media company that did so is Hunan Media and Entertainment. This
past March, it was granted permission by the central government to sell shares on one of
China's two securities exchanges.

HME subsequently received proceeds of about 446 million
yuan ($54 million) from its initial public offering when it became China's first
integrated media company to sell shares.

HME's media holdings include ownership of cable-system
infrastructure -- thereby skirting the country's ban on commercial ownership of cable
operations themselves. It also serves as an advertising representative for a clutch of
satellite-distributed channels, and it has funded individual programs.

Recently, however, China's State Council prohibited
television-production, distribution and advertising companies from selling shares.
Cable-TV companies are also prevented from doing so. The Council did say that
consideration would be given to new applications on a case-by-case basis, providing some
hope to other aspirants.

But HME's shares continue to trade, as the Council ruled
that all companies that are already listed will not be affected. This makes HME even more
unusual, since it is the only publicly traded company with TV production and advertising
as its main businesses.

A more underground relaxation of rules has occurred on the
overseas-programming front. In May, the State Administration of Radio, Film and
Television, the Ministry of Public Security and the Ministry of State Security launched a
nationwide crackdown on unauthorized satellite reception of foreign channels.

Small, underground companies in major cities throughout
China were openly ignoring the 1993 regulations, enabling Chinese individuals to receive
dozens of foreign channels with equipment costing as little as $200 to $300. Local
operators, in addition to individuals, were receiving the channels and transmitting them
over their cable systems to Chinese neighborhoods.

Authorities warned that individuals would be fined for
illegal satellite reception, while many companies engaged in satellite installation were
either fined or shut down. But just months after the crackdown, such businesses are back
in action.

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