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China Cracks Down on Foreign Internet Investors

China is trying to tighten control over foreign investors in Internet ventures in a crackdown that a state newspaper said Friday could see some companies stripped of operating licenses.

It wasn't immediately clear how the crackdown might affect industry giants such as Yahoo Inc., eBay Inc. and Google Inc., which have launched Web portals, search engines and e-commerce sites with local partners in China, the world's second-biggest online market.

Regulators say "unauthorized foreign investors" are improperly offering services with shared or borrowed licenses, domain names or trademarks from Chinese partners, the China Daily said.

A notice on the Web site of the Ministry of Information Industry, which regulates Internet use, orders companies to comply with rules on domain names and other regulations.

The three-sentence order, dated Wednesday, doesn't give details of violations or which companies might be affected. The ministry press office didn't immediately respond to a request for more information.

With 123 million people online, China has the world's second-biggest population of Internet users after the United States and aggressively promotes Web use for business and education.

Regulators are eager to see benefits flow to Chinese companies, and require foreign investors to take on local partners and operate under rules that limit their ownership of ventures.

China capped foreign ownership stakes in Internet ventures at 50 percent under its World Trade Organization commitments to open markets to outside competitors.

But regulators say some have bought into Chinese companies without required approval, while others fail to follow operating rules, the China Daily reported.

It said companies that fail to comply with the latest order could lose their operating licenses.

"Some foreign companies, which already offer telecoms value-added services might have to reapply for a license," said Chen Jinqiao, a researcher at a think tank affiliated with the telecoms ministry, quoted by the China Daily.

It wasn't clear how the order might affect Chinese companies such as Baidu.com or Sohu.com that have set up foreign entities in order to raise money on stock exchanges abroad.

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