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CORRESP
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CORRESP

[Letterhead of The9 Limited]

December 16, 2010

VIA EDGAR

Ms. Kathleen Collins, Accounting Branch Chief

Ms. Melissa Kindelan, Staff Accountant

Division of Corporation Finance

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

              Re:

    The9 Limited (the “Company”)

Form 20-F for the fiscal year ended December 31, 2009

filed on April 16, 2010 (File No. 001-34238) (the “2009 Form 20-F”)

Dear Ms. Collins and Ms. Kindelan,

This letter sets forth the Company’s response to the comments contained in the letter dated
December 3, 2010 from the staff of the Securities and Exchange Commission (the “Staff”) regarding
the 2009 Form 20-F. Each comment is repeated below and followed by the response thereto.

Item 5. Operating and Financial Review and Prospects

Critical Accounting Policies, page 49

    1.

    Notwithstanding your response to our prior comment 4, considering the apparent level of
subjectivity and judgment necessary to determine whether consolidation of your VIEs is
required, tell us how you considered including a discussion of your accounting for
consolidation of VIEs as a critical accounting policy. In this regard, your response suggests
that management is basing its accounting estimates and judgments regarding the consolidation
of Shanghai IT, in part, on the fact that the PRC has historically not challenged the GAPP
Circular. We refer you to Section V of SEC Release No. 33-8350. In addition, tell what
consideration you have given to expanding your Principal Accounting Policies footnote
disclosures to include a discussion of the significant judgments and assumptions (and in
particular to address the impact of the recent GAPP Circular) in determining whether to
consolidate your VIEs. We refer you to ASC 810-10-50-2AA through 50-2AC.

The Company respectfully advises the Staff that it has considered the requirements set forth
in Section V of SEC Release No. 33-8350 and decided to include a discussion of the Company’s
policy with respect to consolidation of the financial results of its variable interest
entities (“VIEs”) in the “Critical Accounting Policy” section in Item 5. Operating and
Financial

Review and Prospects of future filings of its annual report on Form 20-F as follows:

Consolidation of VIEs

PRC laws and regulations, including the GAPP Circular, currently prohibit or restrict
foreign ownership of Internet-related business. We applied our own
assumptions, under the advice of our PRC legal counsel, to comply with these foreign
ownership restrictions. We operate our business through Shanghai IT and have entered
into a series of contractual arrangements with Shanghai IT and its equity owners. The
contractual arrangements are described in Item 7. Major Shareholders and Related Party
Transactions, Section B. Related Party Transactions. As a result of these contractual
arrangements, the shareholders of Shanghai IT irrevocably granted us the power to
exercise all voting rights to which they are entitled. In addition, we are entitled to
receive service fees for services provided to Shanghai IT. Thus, we receive the
economic benefits generated by Shanghai IT, have the ability to effectively control
Shanghai IT and we are considered the primary beneficiary of Shanghai IT. Accordingly,
Shanghai IT is a consolidated VIE of our company.

The GAPP Circular reiterates and reinforces the long-standing prohibition of foreign
ownership of Internet-related publication business via direct or indirect or disguised
manner. However, it is not clear that the regulatory authority of the GAPP applies to the
regulation of ownership structures of online game companies based in China. In
addition, the GAPP Circular does not specifically invalidate VIE agreements, and we
are not aware of any online game companies adopting similar contractual arrangements
as ours having been penalized or ordered to terminate such arrangements since the GAPP
Circular first became effective. Therefore, we believe that our ability to direct the
activities of Shanghai IT that most significantly impact our economic performance is
not affected by the GAPP Circular. Any changes in PRC laws and regulations that
affect our ability to control Shanghai IT might preclude us from consolidating
Shanghai IT in the future.

ASC 810-10-50-2AA through 50-2AC collectively require the reporting entity to disclose the
significant judgments and assumptions used in determining whether to consolidate a variable
interest entity. One of the most significant assumptions the Company applied in
consolidating its VIEs is the interpretation of the provisions of applicable PRC laws and
regulations, including the GAPP Circular.

The Company plans to enhance its disclosure by adding the following to the “<2>
Consolidation” under the Principal Accounting Policies footnote to its consolidated
financial statements in its future filings:

2

PRC laws and regulations currently prohibit or restrict foreign ownership of
Internet-related business. In September 2009, the General Administration of Press and
Publication (GAPP) further promulgated the Circular Regarding the Implementation of
the Department Reorganization Regulation by State Council and Relevant Interpretation
by State Commission Office for Public Sector Reform and the Further Strengthening of
the Administration of Pre-approval on Online Games and Approval on Import Online
Games, or the GAPP Circular. It is not clear that the regulatory authority of the GAPP
applies to the regulation of ownership structures of online game companies based in
China. While the GAPP Circular is applicable to the Company and its business in terms
of publication and pre-approval of online games, to date, GAPP has not issued any
interpretation of Section 4 of the GAPP Circular to specifically invalidate VIE
agreements and, to the Company’s knowledge, has not taken any enforcement action under
Section 4 of the GAPP Circular against any of the companies that rely on contractual
arrangements with variable interest entities (“VIEs”) to operate online games in
China. Therefore, the Company believes that its ability to direct the activities of
Shanghai IT that most significantly impact its economic performance is not affected by
the GAPP Circular. Accordingly, Shanghai IT continues to be a consolidated VIE of the
Company.

Consolidated Financial Statements

    2.

    We note your response to our previous comment 4 where you indicate that Shanghai IT was
designed to comply with PRC regulations that prohibit direct foreign ownership of
businesses that operate online games in China. You further indicate that the September 2009
GAPP Circular repeats the long standing prohibition on foreign investments in online game
operation services. However, as per the disclosures on pages 12 and 38 of your Form 20-F, the
Circular “provides that foreign investors shall not control and participate in the PRC online
game operation businesses indirectly or in a disguised manner by establishing joint
venture companies or entering into relevant agreements with or by providing technical
supports to such PRC online game operation companies...” This notion of indirect ownership
appears to be a new prohibition and therefore it is unclear from your response how your
indirect ownership of Shanghai IT is not prohibited by the September 2009 GAPP Circular and
would therefore not be a reconsideration event under ASC 810-10-25-38A through 38G. Please
explain further.

The Company advises the Staff that the GAPP Circular has not significantly changed the
regulatory environment in which it operates. It is not clear that the regulatory authority
of the General Administration of Press and Publication, or the GAPP, applies to the
operation of online games, such as prohibiting foreign investors from participating in such
business directly or indirectly through contractual or technical support arrangements. As a
result, there is uncertainty with respect to the implementation and interpretation of the
GAPP Circular and the Company believes that the GAPP Circular is unlikely to directly affect
the Company’s control over its PRC subsidiaries and VIEs without further actions by the
relevant governmental authorities.

3

The jurisdiction of GAPP and other government agencies over online games in China is defined
in the Regulation on the Main Functions, Internal Organization and Staffing of the PRC
General Administration of Press and Publication issued by the General Office of the State
Council on July 11, 2008 (the “Regulation on Three Provisions”) and other related rules.
According to the Regulation on Three Provisions and other related rules, GAPP has regulatory
authority over the pre-examination and approval of the Internet publication of online games,
i.e., examination and approval of online games before the games’ publication on the
Internet, and the MOC has regulatory authority over the overall administration of the online
game market and industry planning (other than the pre-examination and approval authority
granted to GAPP). A circular on the interpretation of certain provisions in the Regulations
on Three Provisions, which was issued by the office of the Central Organization
Establishment Commission on September 7, 2009, provides that once an online game is launched
on the Internet, it will only be regulated by the MOC, and that if an online game is
launched on the Internet without prior approval of the GAPP, the MOC,
instead of the GAPP, is the direct authority to investigate the game. To the Company’s
knowledge, the MOC has not issued any regulations expressly prohibiting foreign investors
from controlling or participating in online game operating businesses indirectly through
contractual or technical support arrangements.

On September 28, 2009, the GAPP, National Copyright Administration, and National Office of
Combating Pornography and Illegal Publications jointly published the Circular Regarding the
Implementation of the Department Reorganization Regulation by State Council and Relevant
Interpretation by State Commission Office for Public Sector Reform, and the Further
Strengthening of the Administration of Pre-approval on Online Games and Approval on Import
Online Games, or the GAPP Circular. The GAPP Circular, as its title suggests, primarily
clarifies GAPP’s regulatory authority over the “pre-approval” of online games and approval
of imported online games. Section 4 of the GAPP Circular purports to expressly prohibit
foreign investors from participating in online game operating businesses via wholly owned,
equity joint venture or cooperative joint venture investments in China, and from controlling
and participating in such businesses directly or indirectly through contractual or technical
support arrangements. While the GAPP Circular is applicable to the Company and its business
in terms of publication and pre-approval of online games, it is not clear that the GAPP’s
regulatory authority applies to regulation of the ownership structure of online game
operating businesses under the Regulation on Three Provisions from the State Council
because, as discussed above, once an online game is launched, the MOC has
the sole jurisdiction to regulate and investigate the matters related to the game. Other government agencies that
have regulatory jurisdiction over the online game operations in China, such as the MOC and
the Ministry of Industry and Information Technology (the “MIIT”) did not join GAPP in
issuing the GAPP Circular. Also, to date, the GAPP has not issued any interpretation of
Section 4 of the GAPP Circular and, to the Company’s knowledge, has not taken any
enforcement action under Section 4 of the GAPP Circular against any of the companies that
rely on contractual arrangements with VIEs to operate online games in China.

4

In addition, the Company believes that the GAPP Circular is unlikely to directly affect the
Company’s control over its PRC subsidiaries and VIEs because (i) the Company’s contractual
agreements with Shanghai IT took effect in 2004, prior to the effective date of the GAPP
Circular, (ii) Shanghai IT has applied for and obtained approvals for each online game it
operates and publishes, including two approvals obtained in 2010 after the promulgation of
the GAPP Circular, from GAPP without any incident or any inquiries on the Company’s VIE
structure.

As disclosed in the 2009 20-F, in the opinion of the Company’s PRC counsel, Fangda Partners,
subject to the interpretation and implementation of the GAPP Circular, the ownership
structure and the business operation models of the Company’s PRC subsidiaries and its
affiliated entities comply with all applicable PRC laws, rules and regulations, and no
consent, approval or license is required under any of the existing laws and regulations of
China for their ownership structure and business operation models except for those which the
Company has already obtained or which would not have a material adverse effect on the
Company’s business or operations as a whole.

Based on the foregoing, the Company has concluded that the GAPP Circular has not
significantly changed the regulatory environment in which it operates. Therefore, the
Company does not believe that its control over its subsidiaries and variable interest
entities in China has been affected by the promulgation of the GAPP Circular. The Company
included a brief description of the GAPP Circular on page 12 of the 2009 20-F and also
disclosed on page 23 of the 2009 20-F that there are substantial uncertainties regarding the
interpretation and application of PRC laws and regulations, including the GAPP Circular, and
the Company plans to enhance its disclosure regarding the implementation and interpretation
of the GAPP Circular in Item 3.D Risk Factors in future filings of the Company’s annual
report on Form 20-F.

Based on the above discussion and the consideration of ASC 810-10-25-38A through 38G and ASC
810-10-35-4, the promulgation of the GAPP Circular does not constitute an event that would
require the re-consideration of the primary beneficiary status of the Company. It does not
change the sufficiency of equity investment at risk and the characteristics of the Company’s
controlling financial interest. The Company continues to maintain its ability to direct the
activities of Shanghai IT that most significantly impact its economic performance and to
assume all the economic risks and rewards of ownership associated with Shanghai IT.

Note 25. Commitments and Contingencies

25.3. Contingencies, page F-43

    3.

    We note your disclosures on page F-43 where you indicate that in the opinion of the company’s
directors, your current ownership structure and contractual arrangements with Shanghai IT and
its equity owners, are in compliance with “all existing PRC laws and regulations.” Tell us
what consideration you have given to including a discussion of the September 28, 2009 GAPP
Notice and its potential impact on your conclusions within this section.

5

The Company respectfully advises the Staff that, as previously discussed, the Company is not
aware of any online game companies adopting similar contractual arrangements as it having
been penalized or ordered to terminate such arrangements since the GAPP Circular first
became effective. Rather, despite the GAPP Circular, Shanghai IT has obtained approvals for
each online game it operates and publishes, including two approvals obtained in 2010 after
the promulgation of the GAPP Circular, in compliance with the requirements of the GAPP
Circular.

While it is not clear that the regulatory authority of the GAPP applies to the regulation of
ownership structures of online game companies based in China and the GAPP Circular does not
specifically invalidate the Company’s VIE agreements, the Company recognizes that there is
uncertainty with respect to the interpretation and implementation of the GAPP Circular.
Therefore