China's Pilot Work on Expanding Opening-up of Value-Added Telecommunications Services Officially Launches

2024-04-23

On April 10th, the Ministry of Industry and Information Technology issued a " Circular on Launching the Pilot Program for Expanding the Opening-up of Value-Added Telecommunications Services" (hereinafter, the “Circular”). The Circular specify the purpose, scope, and methods of the pilot work, and the previous foreign shareholding restrictions on certain value-added telecommunications services have been lifted. Key points of the pilot plan are as follows:

Pilot Areas:

Beijing's comprehensive demonstration zone for expanding the opening of the service industry
Shanghai's Lin-gang New Area in the Free Trade Zone and the leading area for socialist modernization
Hainan Free Trade Port
Shenzhen Special Economic Zone with Chinese characteristics

Pilot Contents:

Foreign shareholding restrictions on value-added telecommunications services such as Internet Data Centers (IDC), Content Delivery Networks (CDN), Internet Service Providers (ISP), Online Data Processing and Transaction Processing, as well as Information Protection and Processing Services (excluding Internet news information, online publishing, online audiovisual, and Internet cultural operation), will be lifted.

Pilot Approval:

Foreign-invested telecommunications enterprises planning to conduct the value-added telecommunications business in the pilot areas must apply to the Ministry of Industry and Information Technology for approval of telecommunications business operations. They must comply with relevant laws and regulations and the provisions of the pilot approval during telecommunications business operations and accept and cooperate with supervision and management by telecommunications regulatory authorities and relevant competent authorities.

Follow-up of the Pilot:

The Ministry of Industry and Information Technology will organize an evaluation of the implementation of the pilot to promptly summarize advanced experiences, models, typical cases, etc., and promote them.

According to the requirements of the notice, Beijing, Shanghai, Hainan, and Guangdong will formulate specific implementation plans based on the MIIT's "Plan for the Pilot Expansion of Value-Added Telecommunications Services" and report them to MIIT.

Please refer to the original text of the MIIT's notification in the MIIT Weibo Bulletin or click "Read Original" at the end of the article for direct access to information.

Interpreting Policy by Sinobravo:

The” Circular on Launching the Pilot Program for Expanding the Opening-up of Value-Added Telecommunications Services " issued by the Ministry of Industry and Information Technology is an important practical measure to implement the spirit of the 19th National Congress of the Communist Party of China and the deployment of the Central Economic Work Conference, promote high-level opening-up, actively connect with international high-standard economic and trade rules, and continuously optimize the business environment for foreign investment.

From the perspective of open business categories, the breadth and depth of this opening-up pilot are unprecedented. The pilot plan not only includes Internet Data Centers (IDC), Content Delivery Networks (CDN), and Internet Service Providers (ISP) in category B11 of value-added telecommunications services, but also includes information release platforms and delivery services (excluding Internet news information, online publishing, online audiovisual, and Internet cultural operation) in category B2, such as Online Data Processing and Transaction Processing (commonly known as EDI) and information services (commonly known as ICP). The foreign shareholding restrictions will be completely lifted in the pilot areas.

In terms of the scope of the pilot areas, according to the notice, the pilot scope includes Beijing's comprehensive demonstration zone for expanding the opening of the service industry, Shanghai's Lin-gang New Area in the Free Trade Zone and the leading area for socialist modernization, Hainan Free Trade Port, and Shenzhen Special Economic Zone with Chinese characteristics. According to the Sinobravo team's inquiry into the scope of the above-mentioned pilot areas, the pilot area in Beijing will cover the entire city, Shanghai will cover the entire Pudong New Area, Hainan will cover the entire province, and Shenzhen will also cover the entire city.

The Circular detailed the requirements for the registration location of business operators, the location of service facilities, and the scope of services:The registration location and service facility (including leased or purchased facilities) placement of the business operator must be in the same pilot area, and facilities such as CDN outside the pilot area cannot be purchased or leased for acceleration services.

Service scope: The scope of Internet access services (ISP) is limited to the pilot area, and according to the "Administrative Measures for Telecommunications Business Operation Licenses", Internet access services must be provided to users through basic telecommunications enterprise Internet access equipment. The service scope of other business services can be nationwide.

Regulatory requirements: Foreign-invested telecommunications enterprises conducting the value-added telecommunications business in the pilot areas should be managed in accordance with the principle of "consistent treatment of domestic and foreign capital". Foreign-invested enterprises must obtain relevant pilot approvals for telecommunications business operations in accordance with the "Telecommunications Regulations" and other regulations and comply with relevant laws and regulations and the provisions of the pilot approval during telecommunications business operations and accept and cooperate with supervision and management by telecommunications regulatory authorities and relevant competent authorities.

Regarding policy benefits:

First, the opening policy of the pilot is crucial for stabilizing and attracting foreign investment. Under the wave of global digitization, China has produced many leading Internet companies, and many traditional industry giants have successfully transformed. With the implementation of the pilot work, the opening of the market access will generate long-term "long-tail effects", attracting high-quality foreign-funded enterprises to register and establish operating entities. According to the report of the CAICT, as of the end of June 2023, among the value-added telecommunications service operators issued by the Ministry of Industry and Information Technology, there were 1,448 foreign-invested enterprises, accounting for only 4.45% of the total number of operators. Therefore, there is huge space for the development of foreign-funded value-added telecommunications services in the future.
Second, for Internet companies with foreign investment backgrounds operating in China, the opening of value-added telecommunications services allows them to participate in China's digital economy construction as actual operators, enhance the vibrancy of the Chinese market, and provide more compliant and predictable policies and operating environments for foreign Internet companies. Especially for enterprises that conduct business using Variable Interest Entities (VIE) structures and other protocols, the opening of the pilot will bring more stable and compliant business opportunities.
Third, China is actively promoting accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Digital Economy Partnership Agreement (DEPA), expanding opening-up in investment, trade, data flow, and other areas. The implementation of this pilot policy will further enhance China's competitiveness and influence in the global digital economy arena, demonstrating China's concept of inclusive development.

We look forward to the early introduction of the pilot implementation plans and supporting policies for Beijing, Shanghai, Hainan, and Shenzhen. We also believe that with the comprehensive implementation and gradual deepening of the pilot work, the scope of the pilot for opening up value-added telecommunications services is expected to be further expanded. The Sinobravo policy research team will continue to closely monitor the progress of policy implementation and timely release relevant interpretations. Stay tuned.

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