In order to protect its fixed telephone line business the Middle Kingdom has banned free Internet telephone services for at least two years. Wang Leilei, chief executive of Chinese internet portal group Tom Online, which has a joint venture with Luxembourg-based telephony provider Skype, said China would not issue any licenses for computer-to-telephone calls until 2008. This will be a major setback for Skype which was reportedly in talks last year with Chinese telecom operators to launch its computer-to-telephone service, SkypeOut. Fixed line operators were worried that SkypeOut will drastically reduce their revenues with China Telecom describing Skype as illegal.

Last September US technology group Verso Technologies admitted that it had sold software to an unnamed major Chinese telecoms firm that would allow China to block such telephony services.
Source