Internet cafes must navigate strict government regulations to stay in business 　　
　　After a three-year suspension, on December 13, 2005, authorities in Shenzhen again began accepting business applications for Internet cafes.
　　The first batch of newly licensed cafes began operation in February. According to the local government’s plan, 746 cafes will be opened in Shenzhen, in addition to the existing 314 licensed ones.
　　Last July, the Internet industry regulator selected big cities such as Beijing and Changsha in Hunan Province as trial sites for lifting a restriction on Internet cafes’ business hours that was put in effect in 2002.
　　After initial wildfire growth, followed by a government-initiated rectification campaign, China’s Internet cafes are wending their way out of business doldrums.
　　A fire in June 2002 started by two teenagers at the unlicensed Lanjisu Cyber Cafe in Beijing killed 25 people, most of whom were college students. Following the tragedy, the government ordered all of Beijing’s cyber cafes to halt operations and undergo reform.
　　According to official statistics, 2,200 of Beijing’s existing 2,400 Internet cafes at that time were unlicensed. They failed to meet fire codes, their management was in chaos, and there were fights and theft, police said.
　　The order from on high spread across China. The Ministry of Culture launched a nationwide campaign to inspect Internet cafes between May 10 and December 31, 2005, prolonging the planned period by three months. Unlicensed cafes were shut down, and a number of approved establishments with operational irregularities were also heavily dealt with. In Beijing, more than 100,000 police officers took part in the campaign and launched a total of 34,559 raids. They outlawed 2,033 unlicensed cafes, confiscated more than 2,000 computers and sealed up another 8,757.
　　Also last year, the government announced a new set of regulations intended to tighten control over Internet cafes. Under the new statute, Chinese minors under the age of 18 are barred from Internet cafes, and businesses must close by midnight. The application and approval process for the operation of Internet cafes was also made more difficult.
　　
　　More business restrictions
　　
　　In Beijing’s Internet cafes, customers are required to register in a book provided by the government. The book is a record of every customer’s name, gender and ID number.
　　It’s not worth the risk of being fined thousands of yuan for allowing minors on the premises since control over the Internet industry was strengthened, said Zheng Bin, a cyber cafe operator. To avoid misjudgment, Zheng said he would deny customers asking to surf the Internet without his/her ID.
　　According to Chang Shuhua, an official with the Market Administration Section of the Shaanxi Provincial Cultural Department, a system called the “Internet cafe operation and management platform” is underway to monitor Internet cafes across the province.
　　The province launched its web-monitoring system in 2003. “We attach specially designed software to every server at an Internet cafe and a device to every computer. With all the devices connected, the platform will put the whole Internet cafe under real-time supervision, block dangerous information and detect web violations,” Chang said.
　　When Shaanxi’s new monitoring platform is completed, a customer who wants to go online will require a real-name card, which contains accurate user information and costs 10 yuan.
　　If an Internet user accesses porn websites, or surpasses the time limit implemented by government for playing online games, the system will automatically alarm the monitoring division, which collects records and checks on alarms. The system is also self-protective―if the user tries to uninstall the monitoring software, the alarm is also activated.
　　Chang said the installment of the system in Xi’an is almost complete and will be in operation by the end of this year.
　　While the under-18 set is expected to have an increasingly tough time finding public Internet access, there is at least one exception. Since 2004, Sunshine Cyber Cafe Chain, which is designed for children and teenagers, has begun trial operation in various cities.
　　At Sunshine, web administrators dress in uniform and teach Internet knowledge to minors accompanied by parents or guardians. Management has installed filtering software on all computers to block information considered unsuitable for young people. Users can, however, access content such as movies, brain-training games and educational resources.
　　
　　Low-profit industry
　　
　　In 2003, the Ministry of Culture put forth a new policy on the management of Internet cafes, emphasizing operation scale, chain operation, thematic appeal, and branding. It encourages Internet cafes to function as part of a chain, instead of just as independent businesses.
　　But it’s not necessarily easier for entrepreneurs. Of the first 10 chain Internet cafe operators, only half are still in operation. The other five couldn’t obtain a business certificate because they failed to comply with the regulation that an Internet cafe chain should be comprised of at least 20 outlets.
　　Not all privately owned Internet cafes are interested in the franchising proposal of the government. Zhao Shangwu, a long-time owner of an Internet cafe, said, “It remains unknown whether operating Internet cafes as part of a chain will bring in profits. If it cannot, then why bother to waste the franchise fee? Even it’s a promising business, it’s not cool being chained down to someone else―it’s better to be your own boss.”
　　Dai Ying, who owns an Internet cafe near the airport in Beijing, said of his experience, the chain threshold is a little high for individual cafe operators. “It’s not practical to make big money from an Internet cafe,” Dai said, adding that he is supposed to have at least 80 computers and a 200-square-meter business area before being qualified to join a chain. Dai spent about 1 million yuan in upgrading the hardware configuration for his cafe.
　　The surviving Internet chains also have much to complain about. “We suffer from regulations about business hours,” said a manager who doesn’t want to be identified.
　　“We aren’t allowed to stay open after midnight. But the income in wee hours used to make up more than 50 percent of our revenue,” he added. Another burden is that Internet cafes are taxed at the hefty amusement tax rate of 20 percent.
　　As of August 2005, there were about 10,000 registered Internet cafes in China, 4,434 of which belonged to a chain.
　　According to a nongovernmental study, about 20 percent of China’s Internet cafes charge customers one yuan per hour, 67 percent charge at one to two yuan per hour and 13 percent charge more than two yuan per hour.
　　About half of all Internet cafes generate a monthly net profit of less than 3,000 yuan, 24 percent between 3,000 and 5,000 yuan and about 10 percent make between 5,000 and 10,000 yuan. Taking the depreciation cost of hardware into consideration, most Internet cafes in China survive on only a tiny profit.
　　But Li Hang, General Manager of Read Online, one of the five remaining Internet chains, has a positive outlook.
　　Li said that China’s Internet industry, though under heavy pressure, is working toward a big comeback. “Nowadays, cities like Beijing have already lifted the restriction on business hours. Chinese Internet businesses will have good opportunities as long as there are adjustments to policies.”
　　
　　Online games the pillar
　　
　　The bread and butter of Internet cafes is online gaming, with 70 percent of customers saying that’s the purpose of their visit.
　　So far, the output value of China’s online game industry has surpassed that of the movie industry. “In the next three to five years, the production value of domestic online games could reach somewhere between 15 billion and 20 million yuan,” predicted Zhu Jianqiu, President of Brocade Master Reseller Zarva Technology, a Chinese IT company.
　　Internet cafes are used by game operators as a platform to promote new products. The popularity of online games brings a new prosperity to Internet cafes that are the main channel for selling point cards (a rechargeable card necessary to play online games), and sales of the cards are gradually becoming their primary source of profit, overtaking sales of food and beverages.
　　Online games also necessitate the frequent upgrading of computers in Internet cafes to better and more expensive equipment. As 3D-mode games go mainstream, low-configuration computers cannot meet the standard. This contributes to the demise of many small-fry Internet cafes.
　　To develop a profitable Internet cafe, you should have administrators who are familiar with online games, besides providing good customer service, said web administrator Zheng Bin.
　　“Because players often come to our administrators to ask how to play games, we have to be well-prepared for all kinds of questions,” Zheng said. “As well, you should have a nose for the latest popular games and prepare them for the customers as soon as possible. If a customer cannot play the game he wants in your cafe, he will never come back.”
　　
　　Development of Chinese Cyber Cafes
　　
　　Pre-1995 China’s first Internet cafe appeared in Shanghai, charging about 20 yuan an hour for access.
　　1995-1998 Internet cafes welcomed the first peak period. The business expanded to computer games, with a charge of 10 to 15 yuan an hour.
　　1998-2000 Internet cafes grew at a fast rate and competition stiffened. However, according to the government, perceived social problems arose due to a lack of control.
　　2000-02 Internet cafes entered the business of offering online games. Meanwhile, Internet cafe chains came into existence.
　　2002 A fatal fire at Beijing Lanjisu Cyber Cafe drew the government’s attention and led to the birth of new regulations controlling public Internet access and chain Internet cafes. The industry began to reshuffle, but social problems continued to exist. Online games added momentum to development.
　　2003 The Ministry of Culture officially allowed the operation of Internet cafe chains.
　　2005 Cities such as Beijing and Changsha were chosen as trial sites for the lifting of restrictions on hours of operation of Internet cafes.

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