Foreign business fears further curbs with China's online rules

BEIJING (Reuters) - Foreign businesses operating in China fear new rules on online publication may mean further curbs, as groups from across politics, business and civil society try to understand the scope of the legislation.

The regulations are the latest step by the ruling Communist Party to rein in the Internet, seeing the web as a crucial domain for controlling public opinion and eliminating anti-Beijing sentiment.

The rules say online content publishers should “promote core socialist values” and spread ideas, morals and knowledge that improve the quality of the nation and promote economic development.

The regulations, set to come into effect on March 10, will prohibit foreign ownership and joint ventures in online publishing and stipulate that all content be stored on servers in China.

If an approved Chinese entity wants to engage in a “cooperative project” with a foreign-related enterprise, it must get approval, the rules say.

Some studying the rules worry that, broadly interpreted, they could be used to halt some foreign businesses operating in China and shut down websites, while imposing greater limits on what domestic firms can publish online.

Since coming to power, President Xi Jinping has presided over online censorship on an unprecedented scale, and sought to codify this policy within the rule of law.

“We hope this does not signal greater Internet restrictions,” said Ken Jarrett, the head of the American Chamber of Commerce in Shanghai, which has asked member companies and lawyers for an interpretation.

“China says it wants to transition to a more innovative, knowledge-based economy. Allowing the free flow of information is essential to that effort.”

The Ministry of Industry and Information Technology, and the State Administration of Press, Publication, Radio, Film and Television, which jointly issued the rules, did not respond to faxed requests for comment.

According to the rules, online publishing includes digital work in the fields of literature, art and sciences, such as texts, images, maps, games and audio-visual reading material. Online games must receive advance approval from authorities.

Lawyers and legal scholars say the regulations are likely aimed at online entertainment and educational media. The country’s Internet regulator, the Cyberspace Administration of China, is also proposing broad new regulations to cover online news services.

“What’s targeted here is (Apple Inc’s online music, video and book store) iTunes and their ilk,” said Rogier Creemers, a lecturer in China’s politics and history at Oxford University.

While the regulations are meant to codify policies and practices adopted for the Internet era, “there is a small possibility the new rules were issued with an eye toward unwinding existing deals”, said Scott Livingston, a senior associate with SIPS, an IP and IT consultancy based in Hong Kong.

“Only time will tell.”

Samm Sacks, an analyst at Eurasia Group in Washington, said the rules appeared to revive some language on data localization, keeping servers and data within China, that was removed from anti-terrorism legislation before it was passed into law in December.

“My sense all along was that removing it from the counter terrorism law just meant it would show up in other places, and here we go. I think we will see it crop up in more industry specific regulations, too,” Sacks said.

Foreign companies in China, especially in media, face political resistance in China. The country’s military newspaper calls the Internet the most important front in an ideological battle against “Western anti-China forces”.

Many of the world’s biggest Internet platforms, like Alphabet Inc’s Google services, Facebook Inc and Twitter Inc, are inaccessible in China.

In recent years, Beijing has pursued a raft of laws and regulations, including a new national security law and a draft cyber security law, that have raised the hackles of foreign business groups fearful that China could compel companies to turn over crucial intellectual property to the government in the name of security.

Additional reporting by John Ruwitch in Shanghai and Michael Martina in Beijing; Editing by Nick Macfie