On Feb. 4, 2016, China’s State Administration of Press, Publication, Radio, Film and Television (“SAPPRFT”) and the Chinese Ministry of Industry and Information Technology jointly released the Administrative Rules on Network Publication Service (《网络出版服务管理规定》) (the "New Rules"), which took effect on Mar. 10, 2016.

Since their release, the New Rules have sparked controversy and concern among critics and netizens. We highlight below the key aspects of the New Regulations.

Definition of “Network Publication Service”

The New Rules expand coverage and jurisdiction over online business. The New Rules define “Network Publication Service” as “the provision of digital works with publication features (出版特征) through information networks to the general public within China”.  “Publication features” is defined to include “editing, producing and processing.” The New Rules enumerate four activities that are considered to be “network publications.” These include a catch-all category that gives SAPPRFT the discretion to include other unspecified activities.

Because of the discretionary scope of this definition, some believe that the New Rules could in theory encompass virtually any uploading activities on the Internet by both individuals and businesses in China, and could impose a license requirement on nearly everyone posting something online. In light of the anxiety this caused with the general public, a SAPPRFT spokesperson came out to clarify that the New Rules apply only to certain operators of websites and Apps.

In the offline world, when someone submits an article to a licensed publisher, only the publisher has the full control over whether the works may be published. By analogy to traditional publication, most netizens would be regarded as an author, rather than a publisher, and would not be required to obtain a license before uploading the works.

As clarified by SAPPRFT in a press release, micro-bloggers and WeChat account operators will very likely be deemed as authors, rather than publishers, and will not be subject to the license requirement. Online platform operators, on the other hand, such as the operators of websites and Apps, will be viewed as publishers.

Ambiguity of the Definition

Even though the New Rules are not as heavy handed as initially portrayed by some critics, individuals and businesses still face a number of challenges caused by the nature of the Internet.

Unlike the offline world, the Internet allows anyone to make his or her works known to the world. Therefore, the definition of “Network Publication Service” becomes a tricky question to both regulators and online businesses and users. If interpreted broadly, every operator of a website and anyone running similar platforms arguably is a publisher because its website or App makes content available to the public.

Moreover, a broad interpretation of “Network Publication Service” may also provoke conflicts among SAPPRFT and other regulators of cyberspace. For example, since the posting of news is construed as network publication, SAPPRFT may be competing with another powerful agency, the Cyberspace Administration of China in the on-line news posting.

Businesses are hoping that SAPPRFT will issue detailed implementation rules to clarify the types of activities that will fall within the definition of “network publication service”.

Restrictions on Foreign Investors

The New Rules unequivocally reaffirm the restriction on the online publication sector that foreign-invested companies, including joint ventures and wholly foreign-owned enterprises, are not eligible for a publication license.

For the past 20 years, the “variable interest entity” or “VIE” structure has been used to address Chinese regulatory restrictions over Internet business. The New Rules, like several other laws in the past several years, explicitly require all VIE structures related to online publication to be approved by the SAPPRFT.

Several major market players in China, such as NetEase and Sohu, are currently operating under VIE structures. Obviously, the legitimacy of VIE structures would be enhanced by an approval by SAPPRFT.  The failure to acquire such approval could be bad news to those who use the VIE structure to comply with the regulatory restrictions.

Nevertheless, this doesn’t mean the game is over for the foreign market players. According to the definition of “network publication service”, only those who provide online publication services in China will be subject to the New Rules. In other words, foreign companies will still be able to provide online publication services to Chinese Internet users from outside China.  However, the Great Fire Wall deployed by the Chinese authorities may cause latency when Chinese users try to access foreign servers. In the worst case, which will be officially mandated by the upcoming Cybersecurity Law, Chinese authorities may simply cut off the users’ access to any foreign servers at their sole discretion.

Another possible solution for foreign entities is to enter into contractual arrangements with Chinese-owned online publishers.

Intensified Censorship

The New Rules provide that the legal representative of an online publication service provider must be a Chinese citizen residing in China, and the editors must have certain qualifications recognized by the SAPPRFT.

The New Rules also stipulate that online publication service providers must adopt certain self-censorship mechanisms to avoid illegal content and to promote China's socialist core values. In particular, the New Rules prohibit market players from targeting youth with unhealthy content or making any sensitive publication without filling with the SAPPRFT. Online publication service providers are required to record the content of all their publications for at least 60 days and provide such records to the authorities upon request.

In addition, online publication service providers are required to submit annual reports to the provincial branch of the SAPPRFT. Internet service providers are obligated to examine the qualification and service scope of the providers of publication service.

Implementing Rules

Hopefully, SAPPRFT will release more implementing rules or guidelines to delineate the scope of various online publication services, to specify the requirements for approving VIE structures, and to provide more detail on other aspects on the New Rules. The real impact of the New Rules therefore remains uncertain, pending implementation of the New Rules.