AFX News Limited
FOCUS – Proposed ‘online freedom act’ may hurt US and US-listed China firms
02.16.2006, 07:01 AM
—- by Chris Myrick —-
SHANGHAI (AFX) – A bill to be introduced to
the US Congress, which aims to prevent internet companies from
facilitating censorship overseas, may not only limit US companies’
ability do business in China, but may also deter Chinese companies from
tapping US equity markets, analysts and industry players said.
The bill, if it becomes law, would also adversely impact some Chinese firms that are already US-listed.
A Hong Kong-based analyst, who requested not
to be named, said the proposed legislation could scare off potential
listings or drive them to the Shanghai or Hong Kong exchanges.
‘I think this will be really untimely because
the Shanghai exchange is again going to open for IPOs (initial public
offerings), so if the US is going to do this, I think a lot of the
technology companies that were thinking of a listing, will just turn
towards the A-shares.’
The analyst said that the A-share market and
Hong Kong bourse would likely welcome Chinese technology listings and
that the Nasdaq ‘would not be happy’ with the proposed legislation.
Wei added that investors could also be more concerned by the Chinese government than measures that may be taken in the US.
‘Many internet companies in China don’t own
their businesses but operate through a contract with the local owners,
so for the Chinese company it isn’t really a US business,’ Wei said.
‘I’m not a lawyer, but this adds another level of complexity, it may be
difficult to affect Chinese internet companies.’
Yahoo Inc, one of the targets of the
legislation, could even be shielded as its China operations are
controlled by Alibaba.com, in which the US company has a 40 pct stake.
AFX News Limited
FOCUS – Proposed ‘online freedom act’ may hurt US and US-listed China firms
02.16.2006, 07:01 AM
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—- by Chris Myrick —-
SHANGHAI (AFX) – A bill to be introduced to
the US Congress, which aims to prevent internet companies from
facilitating censorship overseas, may not only limit US companies’
ability do business in China, but may also deter Chinese companies from
tapping US equity markets, analysts and industry players said.
The bill, if it becomes law, would also adversely impact some Chinese firms that are already US-listed.
New Jersey Republican Congressman Chris Smith
is today expected to introduce the ‘Global Online Freedom Act of 2006’
to the House of Representatives. The bill proposes restrictions and
fines on US technology and internet companies operating in China and
other countries that are deemed to be ‘internet-restricting countries.’
The regulations would also apply to companies
that are listed on US exchanges, with the draft saying the legislation
would apply to ‘every issuer of a security registered pursuant to
section 12 of the Securities Exchange Act of 1934.’
That could extend laws covering some of
China’s top internet companies, including Baidu.com, Hong Kong’s Tom
Online Inc and Sohu.com Inc.
The restrictions would bar companies from placing servers in China for search engines, e-mail or weblog services.
It would require them to provide a proposed
Office of Global Internet Freedom (OGIF) with lists of words and
websites given to them by internet-restricting governments, and would
enable non-US internet users to seek legal damages, including punitive
damages, in US courts from companies if an individual is ‘aggrieved by
any violation’ of user identity information.
The final provision seems targeted at
preventing companies from providing user details that could be used to
prosecute individuals for political crimes, something which Yahoo Inc
had been accused of twice in the past year. Punitive damages can be
significant for companies, particularly in jury trials.
A Hong Kong-based analyst, who requested not
to be named, said the proposed legislation could scare off potential
listings or drive them to the Shanghai or Hong Kong exchanges.
‘I think this will be really untimely because
the Shanghai exchange is again going to open for IPOs (initial public
offerings), so if the US is going to do this, I think a lot of the
technology companies that were thinking of a listing, will just turn
towards the A-shares.’
The analyst said that the A-share market and
Hong Kong bourse would likely welcome Chinese technology listings and
that the Nasdaq ‘would not be happy’ with the proposed legislation.
China companies that are already listed in
the US would consider their options, but will likely retain their
listings and pay penalties as needed, the analyst said.
Dick Wei, a China internet sector analyst with JPMorgan in Hong Kong, downplayed the likely impact on listed firms.
‘My impression is that investors may not
think of this as a very important issue. I think that the internet
companies in China would essentially operate with business as usual and
that investors would just consider this as part of the country risk
that an investor has to face.’
Wei added that investors could also be more concerned by the Chinese government than measures that may be taken in the US.
‘Giving monies to another person (in a
punitive damages incident) would likely be a relatively small amount,
compared to what would happen if the Chinese government shut down a
website.’
Penalties for business activities that
violate the provisions of the proposed bill range from 10,000 usd to 2
mln usd, with the higher-end fine being for violations of user data.
Wei also said that it is not yet clear which
companies the legislation would apply to, or whether candidates for new
US listings would be deterred.
‘Many internet companies in China don’t own
their businesses but operate through a contract with the local owners,
so for the Chinese company it isn’t really a US business,’ Wei said.
‘I’m not a lawyer, but this adds another level of complexity, it may be
difficult to affect Chinese internet companies.’
Yahoo Inc, one of the targets of the
legislation, could even be shielded as its China operations are
controlled by Alibaba.com, in which the US company has a 40 pct stake.
The proposal has, however, created uncertainty for internet companies that are seeking a US listing.
Kevin Wen, international business officer for
blog service provider (BSP) Bokee.com, said the company will be closely
looking at the legislation as it moves forward with a possible Nasdaq
offer.
‘It’s a tough issue,’ said Wen. ‘We don’t
have much information but we will be definitely watching this and
looking for more information … but I think as they are still on the
discussion draft there will be still be a process before the Congress
votes.’
Bokee, like all Chinese BSPs, censors blogs that are hosted on its servers in China.
A spokeswoman for Baidu, China’s top search
engine, said the company has not yet reviewed the draft legislation and
is unable to comment at present. Officials for Sina and Sohu were not
immediately reachable.
As well as China, the draft legislation also
mentions Belarus, Myanmar (Burma), Cuba, Iran, Libya, the Maldives,
Nepal, North Korea, Saudi Arabia, Syria, Tunisia, Turkmenistan,
Uzbekstan and Vietnam.
The bill calls for the creation of an office
to monitor internet freedom and would sanction companies that do
business with nations named by the office as ‘internet-restricting
countries.’
The draft names three countries as ‘initial
designees’ ahead of the formation of the suggested office — China,
Iran and Vietnam.
Internet censorship has become an issue for
both houses of Congress and the administration. Secretary of State
Condoleezza Rice on Tuesday launched a task force on internet freedom.
Yan Sham-Shackleton Online 