The opening up of telecommunications value-added services within the China (Shanghai) Pilot Free Trade Zone (CSPFTZ) is an important development for foreign companies. It is also perhaps indicative of the determination of the Chinese Government to continue to pursue opening up as a national policy. Li Haiying from the China Academy of Telecommunications Research (CATR) fleshes out the timeline for the progress made so far and provides their take on the new regulations.
On 27th September, 2013, the State Council released the General Plan of the China (Shanghai) Pilot Free Trade Zone (General Plan). It provided a list of 18 service sectors in six industries tabled for opening up. For telecommunications value-added services—which falls under Trade and Commerce Services—the General Plan:
“…allows foreign enterprises to run certain designated telecommunications value-added businesses in the Shanghai Free Trade Zone on the condition that they ensure network information security. Before deviating from the administrative laws and regulations the company must seek pre-approval from the State Council.”
On 29th September, the Shanghai Municipal Government released the Special Administrative Measures on Foreign Investment Access into the Free Trade Zone (Negative List), which specified special regulations covering information transmission, software and information technology services. The setting up of the CSPFTZ was a significant decision on the part of the Party’s Central Committee and the State Council, and the further opening up of telecommunications value-added services signifies an important step towards promoting development, reform and innovation.
On 6th January, 2014, the Ministry of Industry and Information Technology (MIIT) and the Shanghai Municipal Government jointly released the Guidelines to Further Opening Up the China (Shanghai) Pilot Free Trade Zone’s Telecom Value-added Services (Guidelines). They promote the opening up of seven telecoms value-added services in the CSPFTZ, and feature these two noteworthy points:
1) Foreign companies who are committed to the World Trade Organisation (WTO) and originally had a foreign ownership of less than 50 per cent (before registering in the CSPFTZ) will benefit from further opening up in the areas of information services businesses, store-and-forward services, online data processing and transaction processing businesses. Of these, App Stores (information services businesses) and store-and-forward services will have no cap on foreign ownership. For online data processing and for-profit, e-commerce (transaction processing) businesses, foreign ownership will be capped at a maximum of 55 per cent.
2) Call centres, domestic, multi-party communications services, end-user internet service providers and IP-VPN are newly-added services. The first three have no cap on foreign ownership, while the foreign ownership for companies offering IP-VPN services will capped at 50 per cent. The Guidelines stipulate that any businesses that apply to offer any of these services must register and base their infrastructure in the CSPFTZ, but that these services may be made available nationwide, with the exception of home internet access services which must remain confined within the CSPFTZ.
This is significant for a number of reasons: first is the wide scope of the plan, with seven of the eight telecoms value-added services listed in the Telecom Business Catalogue being included; second, this is the first time that full foreign ownership has been permitted—albeit only under certain specific conditions; third, domestic, multi-party communications services were only formally commercialised in China in September 2013. The fact that this has now been opened to foreign investment with no cap on foreign ownership clearly illustrates the Chinese Government’s determination to follow the path of opening up.
The progress made in opening up telecoms value-added services in the CSPFTZ so far will likely lead to a wider opening up of these services in the future. This should help to create new models and new commercial activities within the information services industry, such as cross-border e-commerce. In addition, the opening up of value-added services in the CSPFTZ should further simplify approval processes, shorten approval periods and create a better development environment for foreign investment.
The China Academy of Telecom Research (CATR) is a telecommunications research organisation attached to the Ministry of Industry of Information Technology (MIIT) of China. For more than 50 years, the CATR has organised the standardisation and industrialisation activities for China’s telecom industry, and also supported the MIIT to form China’s telecom policy and regulations. This article was translated from the original Chinese by Gao Rui.