Document No. 107 of MIIT Brings New Opportunities to FIE

Click above｜Follow us

1. Pilot Regions 

The Notice will carry out the pilot program of value-added telecommunications services in the following four regions:

2. Pilot Open Services 

The Notice opens up foreign shareholding restrictions for the following value-added telecommunications services (foreign shareholding can reach 100%), and the current foreign access situation for related services is as follows:

* Enterprises registered within the Hainan Free Trade Port, and with service facilities all within the Hainan Free Trade Port can carry out IDC and CDN services targeting the entire free trade port area and internationally.

China's opening of telecommunications services to foreign investment generally revolves around China's WTO commitments, while further opening on a small scale through mechanisms such as the "Closer Economic Partnership Arrangement (CEPA)" and the "Special Administrative Measures for Foreign Investment Access in Free Trade Zones (Negative List)." As of the end of June 2023, there were a total of 151,481 value-added telecommunications service operating license enterprises nationwide, among which, 32,509 were cross-regional enterprises licensed by the MIIT, and 1,448 were foreign-invested enterprises, accounting for 4.45% of the total number of operators. Over 80 foreign-funded enterprises in the Shanghai Free Trade Zone and Hainan Free Trade Zone have obtained licenses (pilot approvals).

However, key value-added telecommunications services such as IDC, cloud services (IRCS), and CDN have not yet been opened to foreign investment, except for CEPA and the Hainan Free Trade Port. The release of the Notice brings new opportunities for foreign-funded enterprises to carry out related telecommunications services in China.

1. Specific Services that Can Be Implemented Through the Notice

*It should be noted that the Notice does not open up foreign shareholding restrictions for all ICP services. The following services are not within the scope of the Notice's pilot opening:

• Information search and query services (such as Baidu, Bing, Google, etc. search engines)

• Information community platform services (such as Weibo, Douban, etc. social platforms)

• Information instant interaction services (such as WeChat, Feishu, QQ, etc. chat software)

• Information publishing platform and delivery services involving internet news information, online publishing, online audio-visual, internet cultural business operations (such as online news platforms, online video music platforms, online game platforms, etc.)

2. Declaration and Evaluation Process for Pilot Implementation 

3. Application Conditions for Related Services 

According to the MIIT's response to reporters' questions about the Notice, foreign-invested telecommunications enterprises carrying out the aforementioned value-added telecommunications services in the pilot regions will be managed following the principle of "consistency between domestic and foreign capital." Foreign-invested enterprises must obtain the relevant pilot approval for telecommunications business operations according to regulations such as the "Telecommunications Regulations" and comply with laws, regulations, and pilot approval-related provisions in their telecommunications business operations, accepting and cooperating with the supervision and management of telecommunications management agencies and relevant competent departments.

According to regulations such as the "Administrative Measures for the Licensing of Telecommunications Business Operations," applicants for value-added telecommunications services should meet the following conditions:

• The operator is a legally established company.

• There is capital and professional personnel suitable for carrying out business activities.

• There is a reputation or ability to provide long-term services to users.

• If operating within the scope of a province, autonomous region, or municipality directly under the Central Government, the minimum registered capital is RMB 1 million; if operating nationwide or across provinces, autonomous regions, or municipalities directly under the Central Government, the minimum registered capital is RMB 10 million.

• There are necessary premises, facilities, and technical plans.

• The company and its main investors and main business management personnel have not been included in the telecommunications business operation dishonesty list, etc.

  
  

In addition, enterprises intending to apply for pilot operations should also meet the substantive requirements for the application of the business category. For example, according to the "Notice of the Ministry of Industry and Information Technology on Further Regulating the Market Access Work of Internet Data Center Services and Internet Access Services" (MIIT Electronic Management Letter [2012] No. 552) ("Document No. 552"), applications for IDC and ISP services should also meet substantive requirements including but not limited to:

• The relevant funds, personnel, premises, facilities, and technical plans all meet the specific requirements stipulated in Document No. 552.

• Technical evaluations conducted by third-party institutions, such as data center operation security system evaluation, access resource management platform evaluation, website filing system evaluation, and information security management system evaluation, etc.

The release of the Notice has opened a new window for foreign enterprises to expand their business in China.

1. Changing the Traditional Path of Technical Cooperation and VIE Structure. Currently, foreign enterprises mainly enter China’s telecommunications service market, which has not yet been opened to foreign capital, through technical cooperation or by establishing a VIE structure. However, both paths have their disadvantages.

Under the path of technical cooperation, foreign enterprises mainly rely on Chinese enterprises that hold the corresponding value-added telecommunications business licenses to carry out their telecommunications business operations. The overall business framework is highly dependent on Chinese partners, and there is a lot of uncertainty in defining the boundaries of the technical services that the foreign side can provide. It is also necessary to consider issues such as the ownership and control of the telecommunications facilities involved in the cooperation, intellectual property protection, and compliance with cross-border data transmission.

Regarding the VIE path, while it has been indispensable for the rapid development of China’s internet industry, the legality of such a model has always been in a gray area. Moreover, the smooth operation of related businesses relies on the proper fulfillment of control agreements by domestic enterprises and their shareholders, which involves a considerable degree of moral hazard.

After the pilot opening is implemented, foreign enterprises can break through the technical cooperation and VIE structure paths. They can move from behind the scenes to the forefront, apply for the relevant licenses themselves, and independently carry out related telecommunications businesses.

2. New Scenarios such as Connected Vehicles and the Internet of Things (IoT). The release of the Notice is conducive to foreign enterprises in China expanding into new business forms. For example, the connected vehicle business of foreign automobile companies typically requires multiple telecommunications licenses such as EDI, ICP, and IRCS, depending on the specific business content. In the IoT fields of smart home and industrial control, related businesses usually require an EDI license. Previously, foreign enterprises carrying out such businesses were often restricted by foreign shareholding limits and usually cooperated with domestic license holders. The implementation of the pilot opening can open a window for foreign enterprises to expand new business forms in China.

3. In-Group IT Services. One common operation of multinational corporations in China is to set up subsidiaries engaged in IT technical services. These subsidiaries establish IT infrastructure such as data centers and servers, which are used by multiple companies within the group to achieve shared efficiency. Whether the IT subsidiary’s provision of IT infrastructure services to group-related companies constitutes a business activity has always been controversial. After the pilot opening is implemented, IT subsidiaries can consider applying directly for an IDC license, eliminating the uncertainty of regulatory risks. Not only can they charge operational profits for such internal infrastructure sharing, but they can also consider expanding their service customers to other companies outside the group, reaping multiple benefits.

4. Seizing the Opportunity of the Artificial Intelligence Wave. China’s artificial intelligence industry is in a stage of vigorous development and requires substantial computing power support. Encouraging foreign cloud computing services with advanced computing power to enter China meets the current market demand, is beneficial for the deployment of advanced technology in China, and injects vitality into China’s artificial intelligence industry. It should also be noted that in the process of foreign enterprises introducing cloud computing services to China, the introduction of related technology may trigger foreign export control regulations (such as the U.S. EAR).

In summary, it is recommended that enterprises pay attention to the specific implementation plans subsequently issued by each pilot region to facilitate the assessment of related business expansion and actively seize the policy benefits of the Notice.