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China could block the operations of some of the internet's biggest names in an apparent bid to take more control of the net economy. Yahoo!, eBay and Google all operate in China.

Foreign companies must already allow Chinese investors to own 50 per cent of all ventures in the country, and the government has begun to make announcements hinting that it will further restrict trade.

A state-owned newspaper reported that a clampdown on foreign-owned internet companies was imminent and that some foreign companies could be stripped of existing operating licences. Regulators told the paper that unauthorised foreign investors are using shared or borrowed licences to operate, against the rules, according to the Associated Press newswire.

The Ministry of Information Industry has also posted a notice on its own website instructing companies to fall in line with the laws regarding their Chinese operations, though it does not specify which companies it believes are breaking the law.

The World Trade Organisation insisted that China open up its market to international companies. China capped foreign involvement at 50 per cent as a concession.

China is the second largest internet market with 123m people online, and US technology leaders are extremely keen to tap into a growing commercialism and openness to capitalism in the one-party Communist state.

Some of the internet's biggest names have come in for sharp criticism regarding the concessions they have made in order to be allowed to access the Chinese market. Yahoo! has been accused of aiding in the arrest of a dissident journalist by passing on information about his identity, and Google censors some content on its Chinese site.

The European Parliament has called on the European Commission to establish a code of conduct for internet firms in which they would pledge not to aid censorship. Amnesty International has condemned Yahoo!, Google and Microsoft for their censorship.

"Google respects the fact that people and organisations, including Amnesty, oppose our decision to launch a search service in China," a spokeswoman previously told OUT-LAW.COM. "Google believes that Google.cn will provide significant benefits to Chinese internet users and that our engagement in China meaningfully expands access to information there."

The Chinese government's moves may affect Chinese companies such as search engine Baidu.com. They have set up foreign arms to attract investment, and Baidu has even floated on New York's tech-heavy NASDAQ exchange. It was not clear whether those arrangements would be affected by the coming crackdown.

See also: European Parliament calls for code of conduct for Google, Yahoo! and others

Copyright © 2006, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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