The potential growth of global e-Commerce is undeniable. It is anticipated that $50 billion of revenues in Asia will be contributed by electronic transactions by end of 2003 (Farrell & Yuen, 2000). To maintain its competitiveness in the global arena, both China and Hong Kong did proactively commit in promulgating e-Commerce laws thus enable them to catch up with the world giants and fully embraced the economic benefits brought about by e-marketplace. However, under the "One Country, Two Systems" formula, we notice that Hong Kong and China have taken very different paths when it comes to the regulating of e-Commerce activities. In this paper, we are going to provide a detailed analysis on the legal frameworks addressing e-Commerce law in both regions. Particularly, we will draw a thorough comparison on the distinctive features of e-Commerce components under these two divergent regulatory environments, ranging from access to the Internet, domain name registration, e-Commerce law, digital-signature, online payment, protection of privacy to e-taxation. To conclude, we will summarize our critiques and insights on how the underlying conflicts lead to a separation of law making rationale in the long run.

e-Commerce Law

e-Commerce is the exchange of business-related information using electronic formats, including electronic date interchange (EDI), e-mail, electronic bulletin boards, faxes, and electronic funds transfer (Turban, 2000). e-Commerce law concerns the legal implications of certain actions online and it should address a broad scope of legal issues covering operation, financial, security, privacy, taxation and regulations concerning online activities.

In Hong Kong, the Electronic Transaction Ordinance was enacted on January 7, 2000 and became effective in Apr 7, 2000. The ordinance authorizes the use of Electronic and Digital Signatures, Electronic Records as valid communication methods. It provides for the legal validity of digital signatures and electronic records, as well as for the retention of electronic records and their admissibility in any legal proceeding. Additionally, the Ordinance explains the requirements for the formation of an electronic contract, and establishes regulations for the licensure of certification authorities.

While in China, the government tends to set up guidelines or regulations as means of control. Instead of law make-up by legislative body, e-Commerce falls under the supervision of different government departments. Apart from central bureaus like State Council, Ministry of Public Security and Ministry of Information Industry, local governments also set up their own regulations.

Access to the Internet

By looking at most fundamental pre-requisite for e-Commerce, access to the Internet, clearly, China and Hong Kong are on two extreme sides. Various regulations have been imposed to both end-users and industry players in China. In contrast, Hong Kong government exercises loose control for entity or person to tape into the cyberspace.

China

Any company seeking to establish an online presence China needs to access to the Internet first. Under The Measures for the Administration of Internet Information Services (MAIIS) issued by the State Council in September 2000, any entities that provide information services for profit over Internet is obliged to obtain a license from government. Amended in May 1997, the Computer Linkup Provisions set up a four-tier system (see Appendix 1) for access to the Internet and designated the Ministry of Information Industry as the ultimate gatekeeper for transmissions to and from the World Wide Web.

The Regulation of Public Computer Networks and the Internet promulgated in April 1996 and revised in December 1997 set up a mechanism for censoring information that flows into and out of the country. It imposes some restrictions to both end-users and operators including ISPs and corporate intranet operators (see Appendix 2). All Internet users must obtain proper approval from the MPS before using computer works or network resources, while the ISP has to submit the application form to the public security office within 30 days. In addition, the ISP is responsible for the inspection of content transmitted by their user and set up system to manage the information of electronic bulletin boards. In case of any violations of existing rules and regulations, they must report to the local public security office within 24 hours.

Hong Kong (Kennedy, 2001)

Compared to China, the licensing process adopted in HK is more straightforward. The Telecommunication (Amendment) Ordinance 2000 which was passed on June 15, 2000 and came into force on Apr 1, 2001 introduced a new class licensing system for certain non-essential, value-added services (including Internet services). The ISPs must obtain a public non-exclusive telecommunications service license (PNETS), which is renewable annually for a nominal fee. There is a mature Internet service industry with about 100 Internet service providers (ISPs) that have businesses to extend their reach and provide new and innovative Internet access services.

The HK government does not set much barrier on the access to the Internet, though the Hong Kong Internet Service Providers Association has a voluntary code of practice under which member ISPs agree not to host any illegal content or facilitate illegal activities and to cooperate with other ISPs, users and authorities if such activities take place.

Domain Name Registration

Domain names are organizational entities' official representatives on the Internet. Therefore, their governance and protection are very important. Both regions follow similar registration procedures. However, China has exercised more control over the creation/termination of domain name as long as the state organ found it necessary. And the occurrence of domain name disputes involving renowned international corporations in China is more frequent than in Hong Kong.

China

The China Internet Network Information Centre (CNNIC) oversees the registration and administration of domain names (Lovelock, 1999) according to the June 1997 Administration of the Registration of Domain Names for the Chinese Internet, Procedures, and the Implementing Rules. Since October 1999, companies have been able to apply for either a dot.com or a dot.cn registration. Due to the popularity of dot.com domain names, several government agencies - such as China-Channel.com, Eastern Communications, and XinNet Corporation, all of which are members of Internet Corporation for Assigned Names and Numbers (ICANN) - also added to the list to offer registrations.

Registration of domain names is handled on first-come-first-served basis and should be based on pinyin romanization system of Chinese characters. CNNIC began accepting applications for Chinese character domain names in January 2000. Applicants for a Chinese character domain name must already have a pinyin domain name. According to the report in China Internet Network Information Center (CNNIC), the total number of registered domain names under the country code of "CN" reached 126,146 by June 30, 2002 (see Appendix 3).

To obtain a domain name in China, applicants must meet the following requirements (Kennedy, 2000):

• Companies and institutions must be registered organizations in China. Foreign enterprises must have a branch or representative office in China
• The main domain name serve must be in China
• The proposed domain name should not include an enterprise name or a trademark registered by a third party in China, unless consent has been obtained from the third party

According to the Temporary Management Measures on Chinese Internet Domain Names issued by the Information Work Lead Group of China's State Department on May 30, 1999, companies must renew their registration annually. They must pass an annual CNNIC inspection and pay a fee. Domain names may be amended or cancelled but cannot be sold or transferred.

In October 1999, ICANN approved ChinaChannel.com as an international domain-name agency, the first agency in China. China-Channel offers ".com" domain names using a real-time, automatic registration system. ICANN offers protection of ".com" names through its Uniform Domain-Name Dispute-Resolution Policy, which provides for the resolution of disputes by agreement, court action, or arbitration. Trademark owners can file complaints with courts or submit complaints to an ICANN-approved dispute resolution provider. Domain name disputes can be settled through the courts following normal civil law procedure. Such dispute is not rare in China. For example, the international brands including "Dupont", "Procter & Gamble", and "IKEA" have taken legal action against the Chinese company "International Network Information Company (Cinet)" for squatting their domain names. In June 2000, a Beijing court ruled that the domain name www.ikea.com.cn registered by Cinet infringed IKEA's trademark and ordered Cinet to stop using this domain name. In July 2000, the Beijing court ruled that Cinet had infringed the trade name of Procter & Gamble. In addition to cancel the domain name, Cinet had to pay RMB20,000 to Procter & Gamble as compensation (Nelson & Leigh, n.d.).

Hong Kong

The Hong Kong Network Information Centre (HKNIC) deals with Internet domain names registrations in Hong Kong. Only five second-level domains for the top-level "hk" domain are available, namely ".com", ".net", ".edu", ".org", and ".gov". HKNIC currently registers domain names on a first-come-first-serve basis. The following requirements have to be met to register an ".hk" domain name:

• A local presence in Hong Kong (i.e. companies/business registered with the Companies Registry of Hong Kong or schools registered with the Education Department, etc.). Individuals may not register ".hk" domain names.
• Payment of a one-off fee of HK$200. Unlike in other jurisdictions, there is no annual fee payable.
• The applicant should not own any other ".hk" domain names.

HKNIC does not require a detailed description for the category "purpose of domain name". A one to two word answer such as "business", "Internet retailer" or "information web-site" will be acceptable. Natural persons, whether they reside in Hong Kong, or overseas, cannot apply for domain names. There are no restrictions on the types of domain names that can be registered and /or assigned, other than that the total length of the three-part name must be 27 characters or less. HKNIC may object to domain names which it considered to be offensive, immoral or otherwise deemed inappropriate for use.

Registration of domain names is handled on first-come-first-served basis and should be based on pinyin romanization system of Chinese characters. CNNIC began accepting applications for Chinese character domain names in January 2000. Applicants for a Chinese character domain name must already have a pinyin domain name. According to the report in China Internet Network Information Center (CNNIC), the total number of registered domain names under the country code of "CN" reached 126,146 by June 30, 2002 (see Appendix 3).

Contracting and Digital Signature

As China is still facing uncertainties in the regulation of e-contracting, Hong Kong has already put forward the Electronic Transaction Ordinance to lay grounds for e-contracting, digital signature and certification authority.

China

In March 1999, the National People's Congress published a new contract law, Contract Act of the People's Republic of China (the Contract Act). Article 11 of the Contract Act clearly recognizes the electronic message as a writing form. Article 16 and 34 of the Contract Act also provide the time and lace of contract formation separately. Those provisions provide the basic legal rule for application of the e-contract. But the Contract Act says only the electronic message itself equal to writing. This is simple equivalent, not the "functional equivalent approach" adopted by UNCITRAL in Model Law on Electronic Commerce (1996). This approach is based on an analysis of the purposes and functions of the traditional paper-based requirement with a view to determining how those purposes or functions could be fulfilled through e-Commerce techniques. However there are no other provisions in the Contract Act to govern how the e-contract performs the function of paper-based document. So it is difficult for parties to persuade the judge to enforce a contract entered into by e-mail or other e-message. Legal uncertainty regarding the enforceability of contracts has not been solved. The Contract Act is unable to clear the obstacle to e-Commerce for not providing detail functional equivalent rules (Gao, 2003).

The business practices always go before the law. Certification authorities (CA) have already been set up to provide trust service (or CA service) to individual or entities in Shanghai, Beijing, Guangzhou, Shenzhen, Hainan and other cities since the end of 1999. For instance, the municipal government of Shanghai took the lead in setting up the Shanghai Electronic Certificate Authority Center Co., Ltd. as the body responsible for issuing digital certificates (Nelson & Leigh, n.d.). At the same time, banks and other financial industries have set up it CA system to provide the trust service to its clients.

Some local governments try to enact the regulation to govern the CA service. The Shanghai Municipal Government issued the Provisional Methods on the Price Management of E-commerce in Apr 2000, outlining the procedures for issuing digital certificates, which authenticate digital signatures. The Methods also set up the Shanghai Electronic Certificate Authority Center Co. Ltd. as the sole body responsible for issuing digital certificates. Hainan Province also announced Digital Certificate Rules released on August 9, 2001.

Facing the social needs and the disorder of CA service, and for clearing the legal uncertainty of e-record or e-document, the SLGI decided to draft the Statute on Electronic Signature of People's Republic of China (the Statute) on May of 2002. In the process of draft, there are some debates on the scope of the Statute. One of the key issues is whether the e-signature should include the seal. In China, individuals and enterprises as well as government agencies are used to use seal or seal in addition to personal signature, so if the Statute do not cover the seal its application extension will be largely limited.

Hong Kong

The basic legal principles regarding the formation of electronic contracts continue to be the same. That is, they are based on notions of offer, acceptance, and consideration. Sections 17, 18 and 19 of the Electronic Transaction Ordinance (see Appendix 4) apply in conjunction with the contracting legal principles. Section 17 of the Ordinance states that an offer and acceptance may be expressed in whole or in part by electronic records. Section 18 provides that in the absence of agreement should not affect the formation of contracts. This section appears to suggest that computers can be construed as the originator and, therefore, have the requisite intention to form a contract. An enforceable contract will be formed by a valid online method. Section 19 outlines the provisions as to the time when an electronic record is deemed to have been made. An electronic record is deemed to have been sent when accepted by "an information system" outside the control of the originator; receipt is deemed to have occurred at the time when the electronic record is accepted by the "designated information system". If the electronic record is not sent to the "designated information system", receipt is deemed to have occurred at the time the electronic record "comes to the knowledge of the addressee".

Previously, contracts in digital form would be considered to be "in writing" because of Hong Kong's Interpretation Ordinance, which includes "typing, printing, lithography, photographs and other modes of representing or reproducing words in a visible form" in the definition of "writing" (Tam, n.d.). With the advent of the Ordinance, electronic records are now accorded the same legal recognition as their paper-based counterparts. The Ordinance stipulates that:

• where a rule of law requires or permits information to be given or presented in writing, the use of electronic records will satisfy that rule of law;
• where a rule of law requires information to be retained, or to be presented or retained in the original form, that requirement is met by retaining or presenting the information in the form of electronic records
• contracts shall not be denied legal effect solely on the ground that electronic records are used in their formation; and
• electronic records shall not be denied admissibility as evidence in court on the sole ground that they are electronic records.

In most cases, physical signatures are not a necessary formality to give validity to a document in Hong Kong. Exceptions include transactions involving land, deeds (which must be executed under seal) and assignments of copyright. Even though signatures are not usually necessary to give a contract formal validity, in the physical world, they are the main method of evidencing the fact that an agreement has been reached. Issues in relation to digital authentication of online contracts are discussed further below.

The Ordinance does however provide that where a rule of law requires a signature of a person, that requirement is met by a digital signature (subject to certain specific requirements set out in the Ordinance). Section 6 of the Ordinance does afford statutory recognition for a digital signature if it is supported by a certificate issued by a recognized certification authority (CA) and within the validity of that certificate. If the CA is recognized pursuant to the Ordinance and does provide compliant keys and certificate with the requirements of the Ordinance, then the electronic messages and digital signatures will bind parties without further evidence.

The definition of digital signature in Hong Kong law is given under Section 2 of the Ordinance as follows: "digital signature" in relation to an electronic record means an electronic signature of the signer generated by the transformation of the electronic record using an asymmetric cryptosystem and a hash function such as that a person having the initial untransformed electronic record and the signer's public key can determine (a) whether the transformation was generated using the private key that corresponds to the signer's public key; and (b) whether the initial electronic record has been altered since the transformation was generated.

A digital signature is an encryption of the text of an electronic message that is appended to the message itself. Therefore, a digital signature is unique in each instance. Basic electronic signatures, or an electronic version of ones written signature, can be easily forged, a fraudster need only type another person's name or cut-and-paste over another signature file. Thus, digital signatures are the preferred way of signing electronic documents.

Protection of Privacy

Personal data is an inevitable part in the process of an online transaction. Sometimes, without the prior approval or even the knowledge of the data provider, the person data is "hijack" or other purposes than originally intended. Apparently, Hong Kong adopts a more western approach to this issue.

China

Compared with Western countries, China has been less concerned with the protection of privacy on the Internet. The PRC Constitution provides for individual's rights to privacy in both persona and communications, but also includes broad exceptions for the state to limit these rights in the name of national security, public safety, or other vaguely defined societal interests. Despite the rapid growth of e-Commerce, China has not enacted any laws or regulations aimed specifically at protecting privacy rights in cyberspace. But existing laws and regulations provide limited protection as discussed below:

Article 38 of the PRC Constitution provides that "the dignity of the person of citizens of the People's Republic of China is inviolable. Insult, defamation, false accusation or false incrimination directed against citizens by any means is prohibited." This right in persona has been extended to the Internet. Article 18 of the Implementing Measures for the Provisional Regulations of the PRC for the Administration of International Connection of Computer Information Networks (1998) specifically prohibits any person from "invading another's privacy by distributing malicious information or using another's name to distribute information."

Article 40 of the PRC Constitution provides that "the freedom and secrecy of correspondence of citizens of the People's Republic of China are protected by law. No organization or individual may, on any ground, infringe citizens' freedom and secrecy of correspondence, except in cases where, to meet the needs of state security or of criminal investigation, public security or procuratorial organs are permitted to censor correspondence in accordance with procedures prescribed by law." This constitutional right in communications privacy has also been adopted to cover online communications. Article 7 of the Measures for the Protection of Security and Administration of International Connection of Computer Information Networks (1997) provides that the Internet "users' freedom of communications and secrecy of communications are protected by law. No unit or individual may, in violation of law, use the international connection to invade the users' freedom of communications and secrecy of communications."

There is no data protection law or other laws that limit the government's interference with individuals' privacy in personal data, nor are there any laws or regulations that limit the ability of ISPs or ICPs in using and distributing personal data gathered through the Internet. As a result, many data protection practices that are controversial in the Western countries are currently not subject to legal restrictions in China, including making available or selling to third parties the personal data of customers without their permission or denying customers the ability to review the personal data collected on them and denying them the right to ask for the correction or cancellation of such data.

Most recently, some local regulations aimed at regulating information movement on the Internet have begun to emerge. In May 2000, the Beijing municipal government proposed draft regulations to standardize the delivery of business information via e-mail. It is significant that these draft regulations contain a clause that forbids unwanted e-mail, commonly known as "spam". Some major ISPs also formulated user policies to guard against "junk e-mails." For instance, in August 2000, China Telecom adopted protective measures against junk e-mail, which apply to all subscribers of China Telecom's Internet protocol network, including dial-up users, special line users and others using the network. China Telecom defined junk e-mail as unwanted messages that contain advertisements, publications and other materials; bulk e-mail that fails to specify return paths and senders' names and addresses; activities that use China Telecom's network to violate other ISP's security strategy or service terms; and other e-mail that may cause complaints. Users who are found to have violated these policies will be subject to sanctions ranging from warning to suspension of account and referral to the law-enforcement authorities.

Hong Kong

Personal Data (Privacy) Ordinance, Cap. 486 is enacted in August 1995 and came into operation in December, 1996. It was an attempt to regulate the collection, use, accuracy and security of personal data. The Ordinance applies to both the public and the private sectors, of which the databases where the data is collected, held, processed or used in Hong Kong; or controlled by an entity whose principle place of business is in Hong Kong.

The Privacy Commissioner's Office (PCO) is an independent statutory body setting and governing the enforcement of the Ordinance. The Privacy Commissioner has recently issued guidelines for users of personal data on the Internet (see Appendix 5). The web sites should have their privacy policy statements either accessible or downloadable by their web users. The statement should set out the purposes for which the personal data will be used. If it is for direct marketing, an 'opt-out' choice should be given to the individual. To protect the data, encryption should be used for transmission of sensitive information, or provide a warning that transmission may be insecure.

A failure to comply with the guidelines may lead to a civil action for damages (including for injury to feelings) or a complaint to the Privacy Commissioner. In some cases, breach will constitute an offence. In other cases, the Commissioner may respond to a complaint by conducting an investigation and issuing an enforcement order. It would be an offence not to comply with that order.

Regulation of Web Content

It would not be a surprise to know that China exercises extreme control on online content as it does for offline materials. Regulations on specific areas have been implemented to censor online contents. Instead of imposing regulations on specific industries, Hong Kong government simply based on the principles of existing law to regulate online contents.

China (Gao, 2003)

According to the Ministry of Public Security's Computer Information Network and Internet Securities, Protection, and Management Regulations issued in December 1997, no unit or individual may use the Internet to create, replicate, retrieve, or transmit information that:

• Incites violation of the Constitution or laws, or resistance to the implementation of administrative regulations
• Incites the overthrow of the government or the socialist system
• Incites division of the country, or otherwise harms national unification
• Incites hatred or discrimination among nationalities or otherwise harm the unity of the nationalities
• Makes falsehoods, distorts the truth, spreads rumors, or disrupts social order
• Promote feudal superstitions, sexually suggestive material, gambling, violence or murder
• Promotes terrorism, encourages criminal activity, openly insults other people, or distorts the truth for purpose of slander
• Injure the reputation of state organs

The State Secrets Bureau under the Ministry of State Security issued the State Secrecy Protection Regulations for Computer Information Systems on the Internet on January 1, 2000 to prohibit the dissemination, storing and processing of state secrets by Internet-connected computer systems. State secrets include all reports not previously disclosed through official news agencies, thus outlawing news collection through the cyber-reporters. In terms of content, the regulations are broadly defined to include not only confidential information about national defense, the economy, foreign affairs, social development and technology. The regulations apply to all content transmitted through the Internet in all forms, including e-mail, e-bulletin boards, chat rooms, and Internet newsgroups.

The Measures for the Administration of Internet Information Services (MAIIS), issued by the State Council on September 25, 2000, is a basic regulation on Internet information service. Under the MAIIS, all business websites are obliged to obtain a license from government; that for non-profit website must be file the relative documents to the government. The online information services involving news, publishing, education, medicine, health, pharmaceuticals and medical equipment must get the approval of the ministries responsible for these subjects before getting the license. Internet information providers are obliged to monitor their websites in order to remove "harmful information" broadly defined by Article 15.

On September 29, 2002, the State Council issued Statute on the Administration of Places of Business that Provide Internet Access Service, which substituted the Statute on the Administration of Places of Business that Provide Internet Access Services, jointly issued by the Ministry of Information Industry, Ministry of Public Security, Ministry of Culture and the State Administration for Industry and Commerce on April 3, 2001. The Statute provide that any locations that provide Internet access services to the public, such as cyber cafes (exclude the intranet service set up by library, school, etc.) must get license from Ministry of Culture and its local counterparts; and the other Ministries are responsible for their respective administrative functions. Apart from general ones, there are regulations for specific areas:

News Transmitting
Under the Interim Provisions for the Administration of Online News Transmitting issued on November 7, 2000, only the News Units controlled by central government and province government can publish the news independently; the composite websites operated by non-news unit, approved by the News Office, can re-publish the news published by the approved news websites but can not publish the news edited by itself or from other sources.

Audio-Visual Products Online Trading
On March 27, 2000, The Ministry of Culture issued the Notice on Relevant Issues Concerning the Audio-Visual Products Online Trading (the Notice). The Notice declared the entities that undertaking online audio-visual products trading must apply for the license from local authorities and display its registration particulars on its website. The Notice specifically prohibits foreign-funded enterprises from engaging online audio-visual products trading. The online sale of imported audio-visual products and the online conduct of wholesale business in audio-visual products are also prohibited.

Movie, Radio and TV Transmission
According to the Notice on Further Administration on Transmitting Radio, TV and Movies Through the Internet to the Public, issued by the State General Bureau of Radio, TV and Movies (the SGBRTM) on October of 1999, the domestic entities must acquire the approval from the SGBRTM before transmitting the radio, TV, and movies through the Internet. In particular for news program, they must be produced and have been transmitted by domestic institutions.

Medicine and Pharmaceutical Information Service
Under the Measures for Administration of Internet Health and Medical Equipment Information Service, issued by Ministry of Health on January 8, 2001, the websites business that provide the health and medical equipment must procure an approval of the Ministries prior to applying for an operating license from the telecommunication administration. Under the Interim Provisions for the Administration of Online Pharmaceutical Information Services, issued by State Drug Administration on January 11, 2001, the business websites that provide online pharmaceutical information services require the approval of the State Drug Administration or its local branches.

e-Book and e-Magazine Publishing
The Interim Regulations on the Administration of Internet Publishing (IRAIP), jointly issued by the State Administration of Press and Publication (SAPP) and the Ministry of Information Industry on July 8, 2002 apply to the Internet information providers who engage in the dissemination of content to the public for their browsing, reading, using or downloading. IRAIP try to apply the current regulatory framework governing the publishing to the Internet publishing. According to the IRAIP, online publishers have to apply first to local SAPP, if agreed, then to the SAPP for the last approve. The regulations impose the control of the content of published (forbidding the divulging the State secret, harming racial unity, defamation, violence, erotica, and other information prohibited by law).

Hong Kong (Tam, n.d.)

Instead of imposing regulations on specific industry, the regulations relating to online contents are more general and most are based on the principles of existing law regarding obscenity, defamation, sedition and gambling.

Obscene and indecent Articles
Under the Control of Obscene and Indecent Articles Ordinance, it is an offence to:

• publish an obscene article (whether or not the person knows the article obscene);
• publish an indecent article to a person under the age of 18 years;
• publicly display any indecent matter (whether or not the person knows the matter is indecent); or
• publish certain other kinds of classified articles without the required warnings.

Articles that are considered to be "indecent" by the Obscene Articles Tribunal may not be distributed to under 18-year-olds and must carry a prescribed warning, which must be clearly and conspicuously displayed. The prescribed warning is:

WARNING: THIS ARTICLE CONTAINS MATERIAL WHICH MAY OFFEND AND MAY NOT BE DISTRIBUTED, CIRCULATED, SOLD, HIRED, GIVEN, LENT, SHOWN, PLAYED OR PROJECTED TO A PERSON UNDER THE AGE OF 18 YEARS.

The terms "publish" and "article" have already been held to apply to material displayed on the Internet. What is "obscene" or "indecent" is decided by the Obscene and Indecent Articles Tribunal. "Indecency" is not fully defined, but may include "violence, depravity and repulsiveness".

Sedition
Under Hong Kong law, it is an offence to commit any act with a "seditious intention". Under the newly proposed Basic Law Article 23, the Hong Kong government is required to make laws to prohibit any act of treason, secession, sedition or subversion against the Central People's Government of the PRC. It is also an offence to print, publish, sell, offer for sale, distribute, display or reproduce any seditious publication. This offence is likely to cover websites based on a server in Hong Kong that contain seditious materials. For example, advocating the independence of Tibet and Taiwan may be considered to be seditious.

Defamation
Publication of defamatory material may lead to civil liability in Hong Kong. The accuse of "defamation" is sufficient even if only one person has read the defamatory statement. Where the statement is posted on a server in one country and can be accessed in several others, this would amount to publication for the liability of defamation.

Gambling
Gambling and lotteries are prohibited in Hong Kong, with certain limited exceptions. Promotion and advertising of unlawful lotteries is also prohibited. A gambling website based on a server outside Hong Kong, but accessible in Hong Kong, would not be considered to be unlawful. However, promotion of such a site in the Hong Kong press or from a Hong Kong server may constitute an offence.

Internet Security

The Internet security usually concerns two areas including encryption and state security. Both sellers and buyers of a commercial transaction seek security as assurance that both the goods and the payment are real. In addition, both parties demand secure and private transmissions as an assurance that confidential information will not fall into wrong hands. Encryption is considered an important element of the infrastructure for e-Commerce and exchange. However, the emergence of strong encryption products has alerted many governments to public safety and national security risk. China and Hong Kong have adopted different approaches in this area.

China

Encryption Legislation (Kennedy, 2000)
While most countries opt for export controls on encryption only, China has imposed domestic regulation of encryption by bringing the supply and use of encryption products under an authorization scheme. In October 1999, the State Council issued the Commercial Use Cryptography Management Regulations and they were implemented since November 8, 1999. The regulations applied to developers of encryption and require the registration of all individuals and companies selling, buying and using encryption products in China. As written, the regulations require that all encryption products must obtain approval from the State Encryption Management Commission (SEMC) prior to importation. Once sold to a registered user, the transfer of encryption product is prohibited. Foreign entities or individuals also must obtain SEMC approval to use encryption products must be placed on file with SEMC. Violators may be subject to penalties, which range from the confiscation of encryption products to fines of between one and three times the amount of the illegal income derived. Divulging commercial encryption-technology secrets, attempting to break commercial encryption codes, and using encryption to jeopardize state security, among other offenses, are considered criminal acts and thus may be subject to penalties stated in the PRC Criminal Law. Afterwards, SEMC has made some clarifications on the criteria of encryption products. The regulations apply to:

• Hardware or software for which encryption and decoding operations are core functions.
• DES (Data Encryption Standard) and RSA (Rivest-Shamir-Adelman) encryption technology, regardless of strength.

The regulations do not apply to:

• Password-protected devices such as PIN numbers or log-on passwords.
• Encryption used as an ancillary function for mobile handsets, MS software, browser software and other similar applications.
• Ordinary office-use software with encryption capability installed into the laptops of business travelers

National Security (Nelson & Leigh, n.d.)
The State Secrets Bureau under the Ministry of State Security issued the State Secrecy Protection Regulations for Computer Information Systems on the Internet on January 1, 2000 to prohibit the dissemination, storing and processing of state secrets by Internet-connected computer systems. State secrets include all reports not previously disclosed through official news agencies. The regulations apply to all content transmitted through the Internet in all forms.

On 28 December 2000 the 19th Session of the Standing Committee of the Ninth National People's Congress passed a resolution on maintaining the security of computer networks. This resolution now makes it clear that a number of actions, if found to be carried out or evident on the Internet, will be deemed criminal offences. The consumers or merchants who violate Chinese law governing state secrets through exchanges via e-Commerce may found themselves liable.

Article 8 of The Law of the People's Republic of China Concerning the Maintenance of State Secrets sets out a broad definition of state secrets as to include "other matters of the state determined by state agencies for the maintenance of secrets as matters to be kept secret." The term has been defined in a very expansive manner in some court cases. In Case of Defendant Zhu's Theft of Important State Secrets, the Supreme People's Court affirmed the decision of a lower people's court holding that a national university examination questionnaire constituted a "state secret," the improper disclosure of which is punishable by the State Secrets Law and the Criminal Code.

Article 31 of the States Secret Law that anyone who intentionally or negligently discloses a state secret, "if of a serious nature," shall be punished in accordance with Article 186 of the Criminal Code of the People's Republic of China. Article 186 may impose imprisonment or detention of a term of not more than seven years.

Article 35 of the Implementing Measures for the Law of the People's Republic of China Concerning the Maintenance of State Secrets further defines the "disclosure of a state secret" as "causing a state secret to be known by anyone who should not know it" or "causing the prescribed scope of persons authorized to come into contact with a state secret to be exceeded, without being able to establish that no person who should not know the secret has learned of it."

Hong Kong

Encryption Legislation
The Public Key Infrastructure (PKI) was introduced to address the security concerns. PKI covers the use of public key cryptography and digital certificates. While public key cryptography addresses issues of data integrity and transaction privacy, certificates address concerns in authentication and access control. Public key cryptography involves the use of a pair of different, but related keys which enables the conduct of e-Commerce securely on the open telecommunications network or the Internet. Each user has a private key and a public key. The private key is kept and only known by the user, while the public key is placed in the Public Directory by Hongkong Post. A digital certificate is a digital document attesting to the binding of a public key to an individual or other entity. It allows verification of the claim that a specific public key does in fact belong to a special individual. A Hongkong Post e-Cert contains a public key, the name of the holder, an expiry date, a certificate serial number and subscriber reference number (Au-Yeung, 2000).

The Hongkong Post, the first Recognized Certification Authority under the Electronic Transaction Ordinance, offer e-certificates to support electronic signatures reliable enough to be recognized as equivalent to written signatures.

Certain kinds of software and technology, particularly encryption products, will require an import license. Software that is "generally available to the public", such as mass market software does not ordinarily require a license. In practice, however, all encryption software and hardware will require a license prior to import or export.

National Security
Before the handover of sovereignty, the laws for protection of national security were drawn up by the colonial government. However, these laws had not been evoked for decades as Hong Kong society was relatively stable. After the China and the United Kingdom signed the Joint Declaration in 1984, Beijing started to work on the legal framework Hong Kong after the handover. In April 1988, the first draft of Basic Law was issued. Article 22 read:

The Hong Kong Special Administrative Region shall prohibit by law any act designed to undermine national unity or subvert the Central People's Government

The second draft of Basic Law was issued in February 1989, and the revised draft of Article 23 read:

The Hong Kong Special Administrative Region shall enact laws on its own to prohibit any action of treason, secession, sedition or theft of state secrets.

The SAR government released the proposal to implement Article 23 in October 2002, and published the National Security (Legislative Provisions) Bill in Feb 2003. The final draft is more conservative and including additional language on political organizations:

The Hong Kong Special Administrative Region shall enact laws on its own to prohibit any act of treason, secession, sedition, subversion against the Central People's Government, or theft of state secret, to prohibit foreign political organizations or bodies of the Region from establishing ties with foreign political organizations or bodies.

It has aroused wide concerns and criticism from different parties including politicians, legal, religious, educational and mass communication practitioners in view of its threat to freedom of speech. The vagueness of terms represent a potential threat. When put it into the context of Internet, the situation will be even more complicated. Under Clauses 2A, a person commits subversion if he: -

1. disestablish the basic system of the Republic of China as established by the Constitution of the Republic of China
2. overthrows the Central People's Government
3. intimidates the Central People's Government

by using force or serious criminal means that seriously endangers the stability of the People's Republic of China or engaging in wars.

The Hong Kong Journalist Association has showed concern on the definition of "serious criminal means" in their Submission to the Legislative Council. They have questioned that whether the launching of a massive e-mail campaign to government departments might be interpreted as seriously interfering with or disrupting an electronic system.

Under Clause 9C, a person will commit to sedition if he "publishes, sells, offer for sale, distribute or display any seditious publications." Apply this principle to online publications, the e-publisher may find liable to the law. Whether the e-Commerce websites on trading of books and magazines will be affected is still another question.

e-Taxation

Both countries, like other policymakers around the world, are trying to strike a balance between securing sufficient tax revenues and encouraging the growth of e-Commerce.

China

The Minister of Finance indicated in July 2000 that, although China wishes to foster the development of the Internet, the Chinese government is not willing to forfeit its right to tax e-Commerce transactions. e-Commerce clearly raises a number of issues in the areas of profits tax, VAT/consumption tax, business tax, customs duty, foreign exchange control and business regulation (Law & Lam, 2001).

China imposes import tariffs and import-related VAT on goods imported in general trade. Import-related consumption tax is also levied on certain goods.

• Tariffs: China does not impose levies on exports with the exception of a few types of raw materials and vital resources.
• VAT and consumption tax: China applies a zero tariff rate on exports with the exception of certain restricted or prohibited goods. In other words, there is no need to pay VAT or consumption tax on exports, and tariffs already paid will be rebated.

At present, the export rebate policy is applicable to FIEs under the "VAT exemption, deduction and rebate" system ("Guide to Doing Business," n.d.).

China has not released any general public reports nor taken any active measures on the taxation of e-business, although the State Administration of Taxation (SAT) has an internal committee looking at this particular issue. Certain tax incentives are, however, available for hi-tech companies, including Internet start-up companies. For example both Shenzhen and the Zhongquanchun area near Beijing are offering additional tax holiday incentives. Instead of the usual two years taxfree, three years 50% concessionally-taxed holiday period (2+3) available to most foreign investors, these companies may be eligible for an additional three to five years 50% concessionally taxed holiday period (Farrell & Yuen, 2000).

China has not released any general public reports nor taken any active measures on the taxation of e-business, although the State Administration of Taxation (SAT) has an internal committee looking at this particular issue. Certain tax incentives are, however, available for hi-tech companies, including Internet start-up companies. For example both Shenzhen and the Zhongquanchun area near Beijing are offering additional tax holiday incentives. Instead of the usual two years taxfree, three years 50% concessionally-taxed holiday period (2+3) available to most foreign investors, these companies may be eligible for an additional three to five years 50% concessionally taxed holiday period (Farrell & Yuen, 2000).

In the income tax context, given China's extensive tax treaty network, one highly relevant issue for non-residents doing business in China is whether their activities give rise to a permanent establishment (PE). The definitions of a PE in China's tax treaties generally follow the definition in the OECD model treaty. Provided the business profits from e-Commerce of a resident of a country that is a treaty partner of China are not attributable to a PE of that non-resident in China, the non-resident will not be liable for China income tax on those profits.

VAT is imposed on the sale of goods, the provision of certain services in China and importation into China. Because foreign companies are not permitted to carry on trading businesses in China, a foreign e-Commerce company should not have to account for VAT on its sales in China. However, the customers of a foreign e-Commerce company making sales into China may be liable for VAT, customs duty and consumption tax depending on the nature of the goods they are importing into China. Although the foreign e-Commerce company is not the taxpayer, this liability of its customers in China will affect the affordability of its products in China and may factor into pricing determinations.

If the e-Commerce income is in the nature of a royalty, the income will be subject to Chinese withholding tax. The government has unilaterally reduced the rate of withholding tax to 10% of the gross receipts, regardless of whether it is paid to a treaty country. If there is a treaty, it may be possible to further reduce the effective rate to 7% of the gross, subject to the provisions of the treaty protocol, if applicable.

The 5% business tax, which is imposed on the transfer of intangible assets (including the right to use such assets) to a transferee in China (including by a foreign company that does not have a PE in China), represents a significant cost to the transferor. The business tax is levied in addition to any withholding tax and, because it is a tax on gross receipts, is unlikely to be creditable for foreign tax credit purposes in the foreign company's country of residence. The Chinese tax authorities have waived imposition of the business tax in certain instances to ease the tax burden on foreign corporations, provided China's Scientific Commission is satisfied that it represents a transfer of advanced technology into China.

With effect from March 1 2000, Chinese companies paying fees overseas must obtain a tax clearance, in the form of either an exemption certificate or a tax receipt, before they can proceed with remittance. In the case of a software fee payable for downloading via the Internet, the customer would likely be required to withhold tax at the rate of at least 10%. The customs duty and VAT implications of importing software by downloading it from the Internet have yet to be clarified. In practice, Chinese customs officials may challenge, or at least make inquiries, regarding the charging of a software fee or royalty to a Chinese company (Law & Lam, 2001).

In taxing e-Commerce, policymakers around the world are trying to strike a balance between securing sufficient tax revenues, ensuring equal treatment with conventional retail methods, and encouraging the growth of e-Commerce. Like other countries, China will eventually tax e-Commerce, but it is far from clear how the existing law on taxation of traditional business activities will be applied and enforced with respect to e-Commerce. On various occasions, government officials from the central tax authorities have indicated some directions China's taxation of e-Commerce might take:

• Although China will not forgo the right to tax business transactions on the Internet, it is likely that some preferential tax treatment will be given to e-Commerce in order to foster its development.
• It is unlikely that China will adopt a policy of imposing a new tax specially aimed at online business. Rather, the existing taxes on traditional business will be applied to online transactions.
• The central government has set up a special panel to work out a regulatory framework as well as technological solutions that ensure efficient supervision of e-Commerce taxation (Nelson & Leigh, n.d.).

Hong Kong

Hong Kong has not adopted any tax regulations specifically aimed at taxing electronic transactions. There is a withholding tax that applies to royalties and license fees. The current withholding tax rate is 1.65%. The growth of e-Commerce may produce opportunities for Hong Kong as many e-Commerce operators can use Hong Kong as a regional finance and administration center which offers excellent infrastructure for international business support. As business transactions can be performed through a web site anywhere in the world, it is difficult to determine the location where the profit is sourced or the place where the service is performed. The established principles on the source of profits may be challenged by the new practices made prevalent by e-Commerce.

In Hong Kong, whilst the tax authority is keeping an eye on how other countries are taxing e-Commerce, the application of the territorial concept to e-Commerce remains a contentious issue. The guiding principle should still be that one looks to see what the taxpayer has done to earn the profits in question and where he has done it. In relation to trading through the Internet, the tax authority's position continues to be that the profit is located where the contracts for purchase and sale are effected. The tax authority will also look at the totality of facts in determining what the taxpayer did to earn the profits (Law, 2001).

Hong Kong's tax regime has traditionally been, and continues to be, relatively uncomplicated. Customs duty is chargeable on selected items but there is no value added tax, consumption tax, turnover tax or any other type of indirect tax on sales of goods or services in Hong Kong (Law & Lam, 2001). Hong Kong, consistent with its general "level playing field" tax policy, has not introduced any specific tax incentives for Internet companies, presumably instead choosing to rely on the inherent tax attractiveness of a comparatively low tax rate, its simple territorial - based tax system and generous capital allowances for computer hardware (Farrell & Yuen, 2000).

Because of the inherent undesirability of compromising the simplicity and competence of the Hong Kong tax system, the Inland Revenue Department (IRD) is unlikely to interfere with these underlying principles. The IRD issued a "Departmental Interpretation & Practice Note" (DIPN) in July 2001 that stated the IRD would apply current tax rules to e-Commerce on the same basis as to other forms of business so that no particular business form will have an advantage or a disadvantage from a taxation perspective. The IRD will determine profits tax liability under the above conditions by reference to the manual operations carried out. If a taxpayer failed to observe the treatment advocated in the DIPN, the matter would be brought before the Board of Review or the Hong Kong Courts (Law & Lam, 2001).

Hong Kong is not a party to any income tax treaties, except with China and various agreements relating to transportation income. This lack of a tax-treaty network may make Hong Kong a less favourable jurisdiction for a regional holding company from a taxation perspective. For example, it would be more beneficial to route any investment into Japan through a holding company in Singapore rather than Hong Kong. Dividends paid by the Japanese subsidiary would be subject to Japanese withholding tax of 20% if they were paid to a Hong Kong holding company. On the other hand, dividends paid to a Singapore intermediary entity would be subject to withholding tax of 5%. As the tax rate in Japan is higher than the Singapore tax rate of 25.5%, no additional tax is payable and no taxes should apply on the payment of the dividends from Singapore.

In order to eliminate any competitive advantages currently enjoyed by treaty residents, Hong Kong and China entered into the "Agreement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation on Income" in February 1998. The taxes to which the Agreement applies are:

• individual income tax, foreign investment enterprise income tax and foreign enterprise income tax in China; and
• profits tax, salaries tax and tax charges under personal assessment in Hong Kong.

However, unlike other tax treaties, the Agreement does not deal with issues such as withholding tax rates on interest, royalties and dividends. Fortunately, China does not at present impose withholding tax on outbound dividends, and the withholding tax rates on interest and royalties have recently been reduced to 10%, the same as most treaty rates. The Agreement maintains the status of Hong Kong as the most favored intermediary jurisdiction for investments into China.

The Hong Kong Government has steadfastly declined to offer specific tax incentives such as reduced tax rates, tax holidays or tax credits to attract foreign investment. As hi-tech industries are becoming more and more important, and Hong Kong still has a long way to go in building up its technology sector, tax incentives may become an attribute needed to attract foreign investment in these industries, especially as neighbouring competitors such as Singapore, Taiwan and Shenzhen are offering tax incentives to these industries (Law, 2001).

e-Payment

Credit card is the preferred payment for business-to-consumer e-Commerce. In this respect, China is lag behind Hong Kong in terms of credit card penetration. Although companies in China take the lead to develop online payment services, the problem of integration becomes an unsolved one. Hong Kong sticks to the worldwide trend of e-payment mechanism.

China

In China, more than 200 branches of the 20 banks have set up their websites or homepage, at least 50 branches provide online payment services. They issued 200 million debit or credit cards. The uniform network of all banks will be carried out completely at end of 2003. However, Chinese consumers prefer generally to transact in cash, the rate of use of debit cards and credit cards is low in practice (Gao, 2003).

As the use of credit cards is still not common in China, business-to-consumer (B2C) e-Commerce has not developed as rapidly as in other developed countries. Most B2C transactions are conducted in the form of order online and payment offline. They rely heavily on alternative payment mechanisms like cash on delivery, wire transfer and opening of accounts with the seller's house bank.

The lack of integration is a problem for the use of debit cards. Cross-province or cross-bank payments cannot be done. This problem was addressed by the Chinese government's initiative, Golden Card Project, in 1993. The People's Bank of China is working to incorporate banks and domestic credit card companies into one network, the Golden Card network, and has so far linked 10,000 ATMs, 100,000 point-of-sale centers and some 100 million bank cards across 16 cities and provinces. It is expected that most Chinese banks will be part of a national network capable of conducting real-time transactions between different banks.

The launch of ChinaPay.com in June 2000 was a milestone in the establishment of a nationwide payment network. ChinaPay.com is the joint effort of Shanghai Bank Card Network Service Center and Shanghai Huateng Software System Co., Ltd. Through its "1LinkPay" system, ChinaPay.com brings together the Golden Card national bank card network and payment gateway technology developed for China's banking and business environment to offer online payment services to businesses and consumers. In Beijing, Cyber Beijing offers online payment for customers of almost all the banks in Beijing. To tackle the online security issues, the People's Bank of China and 13 domestic commercial banks have started the establishment of a Certificate Authority Center (CAC), which will issue security certificates to online traders (Nelson & Leigh, n.d.).

For regulating the e-banking business, the People's Bank of China issued the Interim Measures for the Administration of Online Banking Business on July 9, 2001; and the Notice of the People's Republic of China on Relevant Provisions Concerning Implementation of the Interim Measures for Administration of Online Banking Business in April 2002, for providing the detail enforcement rules. In addition to detail approval procedure and the documents for application, detailed rules governing the maintenance of security in the conduct of online operations are included (Gao, 2003).

From the case of Alibaba, it's obvious that e-payment mechanism in China still remains unsolved. Alibaba, a pioneer in China's B2B marketplace, has rooted in China as its founder, Jack Ma, launched the site in April 1999 and operated from his home town of Hangzhou. Having previously produced a simple on-line listing of Chinese suppliers, Ma used his experience to launch an on-line marketplace that provide a way for suppliers and potential buyers to hook up on the Web. Today, the site mainly links buyers and sellers from 192 countries; listing across 27 different industries and trade in 33 different categories ranging from toys to agriculture and industrial equipment. Although the site provides some information services, such as credit checks and shipping quotations, it does have very limited online transaction capabilities. Indeed, Alibaba has been criticized as an online meeting space rather than a real marketplace due to the challenges of e-payment in China. As a solution, Alibaba.com launched an on-line payment center for China users after two years of operation in 2001. It's a groundbreaking setup catering to large-sum electronic transactions in China, and, like most B2B payment transactions, it does not involve credit cards. On the other hand, Alibaba.com has only minimal SSL protection for credit card payments of products it sells directly to consumers. For these transactions, Alibaba.com uses HSBC's payment system. Yet, Alibaba don't have SET protection for their B2C transactions but since their B2C business is only marginal so they can afford the risk. Jospeh Tsai, CFO of Alibaba.com remarks "What is frustrating is that HSBC is really a conservative bank that we need to ask for permission every time we sell a new product on our website. The bank is constantly worried that we cannot deliver what we promise our customers".

Hong Kong

One challenge e-Commerce retailers face is providing payment mechanisms that consumers perceive as sufficiently secure and convenient to induce them to complete commercial transactions online. For e-Commerce to grow beyond a small niche market, ordinary consumers will have to be persuaded to accept some form of digital payment mechanism as being as reliable and convenient to use as cash is today.

Unless the merchant is working on a strict cash basis (which is difficult on the web) or using some other method of offline payment, taking money isn't easy and requires different processes of interaction with banks or other financial institutions. Presently, credit card payments, electronic money, electronic checks, and smart cards are the most common methods of e-Commerce payments.

According to Internet specialist Jupiter Communications, credit cards remain as the preferred method of payment for online purchases. Credit card transactions between the merchant web site and the consumer are encrypted using a technology called SSL, or secure sockets layer. One shortcoming of SSL is it cannot confirm for the merchant that the person with the credit number is actually the real cardholder. Similarly, there's no way for a customer to know if the merchant web site is really authorized to accept credit cards or if it's just a fake site designed to collect numbers.

To solve that problem, MasterCard and Visa are heavily promoting a jointly developed technology called secure electronic transaction (SET). SET provides authentication by giving each customer and merchant a digital certificate. SET encodes the credit card numbers so only the consumer and financial institution have access to them. Cardholders, merchants, and the financial institutions each retain SET certificates that identify them and the public keys associated with their digital identities. At the time of the purchase, each party's SET-compliant software validates both merchant and cardholder before any information is exchanged. The validation takes place by checking the digital certificates that were issued by an authorized third party. In the case of Hong Kong, the third party is Hong Kong Post ("Digital Hong Kong," n.d.).

The Hong Kong Monetary Authority, under the Banking Ordinance, regulates the issuance of multi-purpose stored value cards. Banks licensed in Hong Kong have the authority to issue these cards, although other types of businesses may apply to the Department of Trade and Commerce for a license to issue multi-purpose stored value cards. The Banking Ordinance also applies to companies that make arrangements with third parties to issue multi-purpose stored value cards. In addition, smart cards with digital authentication capabilities are regulated under the Import and Export (Strategic Commodities) Regulations. SMEs who intend to offer such cards as part of an electronic payment scheme should obtain specific advice on compliance with these laws (Tam, n.d.).

Foreign Ownership

Hong Kong is best known for its non-intervention policies on various areas including foreign ownership. With the accession to WTO, China's regulation on foreign investment in e-Commerce is to be complicated by its restrictive measures governing foreign investment and trade. To combat the situation, some foreign companies use "Guanxi" to build positive relationships with government officials.

China

Sino-foreign Equity joint venture (with up to 49% foreign equity share allowed after China's WTO entry) is the only type of Foreign Direct Investment (FDI) that will be allowed in China. On March 16, 2003, business outside China will be able to register .cn domain names for the first time in history - providing Western e-tailors the opportunity to gain access to the country's vast and rapid growing online population.

Those e-Commerce activities that involved foreign partners and business networks are tightly monitored and controlled by government agencies. For example, the online brokers of securities and commodities in China are prohibited from discounting their commission rate if the service is provided by foreign companies. It is apparently clear that foreign investors face stiffer control while conducting e-business under the Chinese jurisdictions.

There is tremendous implication for foreign investment in the fledging e-Commerce industry of China. To be successful, foreign investors must be pursued with intense managerial commitment. A key strategic element for FDI into China's e-Commerce is to generate short-term profits in order to build the critical mass of benefits. This can be done by employing all their best capabilities, such as Internet-based cutting-edge technologies and Internet-savvy personnel when developing their strategy in the Chinese business environment. Most importantly, it is believed that "Guanxi Networking", a strategy by cultivating and developing good relationships with local alliance and government officials, is key component that can help overcome institutional deficiencies and minimize legal uncertainties embedded in conducting local e-Business. Foreign investors who have developed close ties with leaders are likely to obtain preferential treatment like extra incentive for local supplier to make on-time delivery. It is also believed that government officials have greater power to allocate critical resources and influence legislative decisions that might help protect the interest of foreign investors.

Hong Kong

Generally speaking, foreign companies will be treated no differently by the authorities in Hong Kong than local companies. There are a few exceptions to this but none that should hinder an e-Commerce. Foreign investment is permitted in all sectors of the Hong Kong economy.

There are no laws in Hong Kong requiring a foreign investor in any particular area of business to have a Hong Kong partner. Therefore, it is open to a foreign investor to own, beneficially, 100% of the shares in a Hong Kong Company (with one share held by a nominee to satisfy the minimum requirement of two shareholders). A foreign investor may establish a place of e-Business in Hong Kong in the following ways:

• by the purchase of the whole of the issued share capital of an existing Hong Kong company which carries on business in Hong Kong or by the acquisition of the business, assets and undertaking of an existing company which carries on business in Hong Kong;
• by the registration of a branch in Hong Kong which will then carry on business;
• by the incorporation of a Hong Kong subsidiary company which will then carry on business; and
• by entering into of joint venture or partnership arrangements with another entity in Hong Kong.

A foreign corporation which has not obtained a Business Registration Certificate, if carrying on business, will not be able to enter into contracts with the Government or otherwise, to hire staff, to open bank accounts, to import equipment, to obtain work permits or to import/export materials.

Tariffs, Quotas and Licensing Control

The regulation of goods flow in China will be ever evolving with the accession to the WTO. Under the "One country two systems" situation, Hong Kong still enjoys its free port status.

China

As part of its WTO commitments, China will gradually remove all non-tariff measures (quota, license and special tender for mechanical and electronic products) for more than 400 import items before 1 January 2005. China has cancelled the quota and licensing requirements on the export products concerned. China has also introduced reforms in the import management of agricultural products. Certain bulk agricultural produce such as wheat, grains and cotton, which used to be under absolute quota management are now subject to tariff-rate quota management. In the long run, direct administrative measures such as quota and licensing control will be slashed now that China is a WTO member. In December 2001, China promulgated a series of new administrative measures for import and export in keeping with its WTO commitments. These rules have formed a new administrative framework for the quota management and licensing control of imports and exports.

For the import of commodities subject to quota and licensing control in general trade as well as commodities subject to voluntary import licensing, it is necessary to apply for an import quota certificate and an import license before customs declaration. For commodities subject to export quota control in general trade, it is necessary to apply for an export license by presenting the export quota certificate. For the export of commodities subject to export licensing, it is necessary to apply for an export license by presenting the export contract. For the export of commodities whose export quotas are obtained with compensation through tenders, utilized with compensation, or obtained without compensation through tenders, application for the license should be made after a successful bid has been made and the quota amount confirmed ("Guide to Doing Business," n.d.).

Generally speaking, foreign companies will be treated no differently by the authorities in Hong Kong than local companies. There are a few exceptions to this but none that should hinder an e-Commerce. Foreign investment is permitted in all sectors of the Hong Kong economy.

Hong Kong

Goods flow freely through the duty-free port of Hong Kong. Under Hong Kong's separate customs regime, only a handful of goods are subject to tariffs. There are no import duties on machinery or raw materials. Hong Kong also has easy access to state-of-the-art hardware and software. Its economy is nurtured by a government policy of maximum support and minimum intervention.

Import and export licenses, and certificates of origin are only required to enable Hong Kong to fulfill its obligations under international agreements or requirements of importing countries and for public health, safety or security reasons. Textiles and clothing products for export to certain markets are currently subject to quota restraint Excise duties are levied only on tobacco, liquor, methyl alcohol and hydrocarbon oil, whether imported or locally manufactured ("Hong Kong's Top," n.d.).

Under the Import and Export (Registration) Regulations, any person who imports and article into Hong Kong, other than an exempted article, will be required to lodge an import declaration with Custom and Excise Department within 14 days of import. The Import and Export (Strategic Commodities) Regulations require that all persons importing or exporting strategic commodities first obtain a license from the Trade Department. The procedure for obtaining a license is generally quick and inexpensive (Tam, n.d.).

Conclusion

As Hong Kong and China continue to adopt different approaches in e-Commerce legislations, the lack of harmonization is likely to hinder the cross-border e-Commerce activities. With the boundless nature of the Internet, e-Commerce sets foot in any place in the world. The activities in one country or jurisdiction have instantaneous and simultaneous results in another. In addition, there are intriguing forces between countries with one influencing the others and vice versa. The gap between Hong Kong and China will be narrowed as China continues to open its market.

From a general perspective, Chinese government tends to set up guidelines or regulations as means of control. Access to the Internet and censorship of web contents are good examples. Although the government recognizes the merits of information technology, it fears that the unrestricted spread of idea and knowledge would subvert its dictatorship. To China, national security is more important than facilitating e-Commerce. In order to scrutinize any hidden flow of state secrets, China imposed domestic regulation of encryption. This, however, violates the original intention of encryption products.

Since e-Commerce covers many areas, different state organs impose and put forward guidelines or regulations concerning e-Commerce. Apart from central bureaus, local governments also set up their own regulations. In fact, local moves faster than the central government. For fast developing regions like Shanghai, Beijing and Guangzhou, e-Commerce businesses proliferate and local developments or regulations may come before the central government lay down specific policies. Hence, the central government has to interfere with the local bodies and this may lead to problems like integration.

Like the "one country, two systems" principle, Hong Kong and China have taken very different paths when it comes to regulate e-Commerce legislations. Hong Kong has taken a progressive approach. The Electronic Transactions Ordinance is based on the Western legal tradition and emphasized such principles as freedom of contract and economic liberty. Proper regulations in other areas like personal data privacy, domain name registration and telecommunications have fostered a nurturing environment for e-Commerce growth. e-Taxation remains as a key issue and both governments have not taken any active measures.

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Appendix 1

The Computer Linkup Provisions (May 1997)

• Tier 1: MII-operated international gateway
• Tier 2: It is made up of four government ISPs known as interconnected networks including CHINANET (administered by China Telecom), CHINAGBN (administered by Jitong Communication Co. Ltd.), CERENT (administered by the Ministry of Education) and CASNET (administered by the Chinese Academy of Sciences)
• Tier 3: Private-sector ISPs, they can only link to the Internet through the four governments interconnected networks.
• Tier 4: Internet users, which are either individuals, legal persons, or organizations. They can obtain Internet access indirectly from a private-sector ISP or directly from one of the four government ISPs.

Appendix 2

The Regulation of Public Computer Networks and the Internet (Dec 1997)

Under Articles 6 & 11, Internet users must:

• Obtain proper approval from the MPS before using computer networks or network resources
• Complete and return to their ISP a form designed by the local security public office (under Article 12, the ISP must transmit the information in this form to the public security office within 30 days)
• Refrain from changing network functions or adding or deleting information without prior permission
• Refrain from adding to, deleting, or altering the information stored, processed, or transmitted through the network without prior permission
• Refrain from deliberately creating or transmitting computer viruses
• Refrain from all activities that harm the network

Under Article 10 and 13, the ISPs and corporate intranet operators must:

• Establish a management system for network security and protection
• Implement security techniques and protection measures
• Provide security education and training for network users
• Inspect the content of information released on behalf of someone else and register the unit or individual on whose behalf the information was released
• Establish a system for registering users and managing the information of electronic bulletin boards
• Report violations of the regulations within 24 hours of their discovery to the local public security office
• Remove web address and directories and close serves as required by regulations
• Establish a system for registering users of public accounts
• Refrain from lending or transferring accounts

Appendix 3

Distribution of registered domain names under area name of "CN" (Dec 1997)

Appendix 4

Electronic Transaction Ordinance (Apr 2000)

Section 17 of the Ordinance states that an offer and acceptance may be expressed in whole or in part by electronic records, unless the parties agree otherwise. Exceptions from the application of the Ordinance include certain documents such as wills, trusts, statutory declarations and affidavits.

Section 18 of the Ordinance provides that in the absence of agreement, the electronic record between the originator and the addressee of an electronic record to the originator if it was sent by the originator, sent with the authority of the originator or sent by an information system programmed by or on behalf of the originator to operate and to send the electronic record automatically, should not affect the laws on agency or on the formation of contracts. This section appears to suggest that computers can be construed as the originator and, therefore, have the requisite intention to form a contract. An enforceable contract will be formed by a valid online method

• Third persons cannot generally enforce rights created under a contract between others.
• It must be clear that the parties intend to be legally bound. This may happen when one party accepts an offer made by the other party (for example, clicking on an "accept" or "submit order" button after entering necessary details and reading the terms of sale). A contract may also be formed by conduct (for example, a customer accepts the supply of services or downloads software, knowing that certain license terms will apply.)
• The parties must agree all essential terms. For example, no contract will be formed if the price has not been agreed (or there is no mechanism for determining the price.)
• The terms of the agreement must be clear enough for an outsider (a judge or arbitrator) to determine their meaning. In any case, it is always advisable to ensure that the terms of any agreement are clear and unambiguous.
• There must be mutual promises by each party to the other. A gratuitous promise is not enforceable.

Section 19
Section 19(1) of the Ordinance states that, unless the originator and the addressee of an electronic record otherwise agree, an electronic record is deemed to have been sent when accepted by 'an information system outside the control of the originator or of the person who sent the electronic record on behalf of the originator'.

Section 19(2) of the Ordinance provides that, unless the originator and the addressee of an electronic record otherwise agree, receipt is deemed to have occurred at the time when the electronic record is accepted by the 'designated information system' if the addressee has designated an information system for the purpose of receiving electronic records. If the electronic record is sent to an information system of the addressee that is not the 'designated information system', or if the addressee has no 'designated information system', receipt is deemed to have occurred at the time the electronic record 'comes to the knowledge of the addressee'

Appendix 5

Guidelines for users of personal data on the Internet

1. Where personal information is collected through a webpage, the identity of the organization behind the page should be made clear.
2. Organizations with web sites should have their privacy policy statements either accessible or downloadable by their web users (including use of cookies and the policy on spamming);
3. Each page where personal information is collected should include a link to a 'personal information collection statement'. The statement should set out the purposes for which the personal data will be used (among other things). If public display of the information is intended or use for direct marketing, this should be made clear when the information is collected.
4. Only use the data for the purpose for which is was collected, as set out in the personal information collection statement.
5. Use encryption when transmitting sensitive information, or provide a warning that transmission may be insecure.
6. Direct marketing emails should contain an express 'opt-out' choice to the individual.
7. ISPs should inform their customers of the purposes for using 'click trails' information.
8. An automated comparison of databases containing personal data ('data matching') should not be carried out where:
• each database contains personal data that has been collected for different purposes;
• the comparison involves personal data of 10 or more people; and the end result of the comparison may be used to take adverse action against any of those people.