In a further push to the development of the outsourcing industry in China, the State Council and the Ministry of Industry and Information Technology recently announced a series of policies which aim to relax foreign investment restrictions on certain telecoms-related activities which would otherwise be subject to China's fairly stringent restrictions in the telecoms sector.

Operation of call centres in China

The operation of a call centre in China is subject to the telecoms regulatory regime in the PRC. The relevant regulations provide that a foreign investor must set up an equity joint venture with a PRC partner and the foreign investor's interest must be capped at 50%. Although there are examples of foreign investors that have successfully obtained the requisite foreign investment approvals from the Ministry of Industry and Information Technology ("MIIT") to operate call centres, these examples are few and far between.

Relaxation of foreign investment restrictions for offshore call centre outsourcing

The above foreign investment restrictions undoubtedly hinder the development of offshore business process outsourcing in China, particularly if the business process involved is regarded as a telecoms activity. The operation of a call centre is a prime example.

The new policy, as stated in the State Council's announcements on 7 April 2010 and 12 August 2010 and in MIIT's notice of 10 November 2010, is therefore ground breaking as the policy allows foreign investors to operate call centres in 21 'model cities' in China on a trial basis, without having to partner with a PRC company. In other words, a foreign investor may choose to set up a wholly foreign owned enterprise or an equity joint venture and there will be no restriction or cap on the foreign investor's shareholding.

These 21 model cities are Beijing, Tianjin, Shanghai, Chongqing, Dalian, Shenzhen, Guangzhou, Wuhan, Haerbin, Chengdu, Nanjing, Xian, Jinan, Hangzhou, Hefei, Nanchang, Changsha, Daqing, Suzhou, Wuxi and Xiamen.

To qualify for the relaxation, however, the clients that engage the call centre outsourcing service provider must be based outside of China and the target customers of the call centre service must also be based outside of China. This qualification seems consistent with the overall policy of encouraging the development of offshore outsourcing services.

Key features of the new policy

1. Trial call centre offshore business approval

Under the existing telecoms regulatory regime in China, a telecoms licence applicant must submit an application to MIIT for approval. One of the key changes under the new policy is that instead of a telecoms licence, the applicant will obtain a trial call centre offshore business approval, which will be issued by MIIT's counterpart at the model city level.

2. The establishment of a call centre offshore business can be approved by the commerce authority at the model city level

The Ministry of Commerce ("MOFCOM") is responsible for approving an application for the establishment of a telecoms business submitted by a telecoms licence holder. Under the new policy, a call centre offshore business can be approved by MOFCOM's counterpart at the model city level.

3. A call centre offshore business may open branch offices in other model cities

The new policy expressly allows a call centre offshore business duly set up in a model city to open branch offices in other model cities simply by filing the relevant documents with MIIT's counterparts at the model city level.

Other requirements under the existing telecoms regulatory regime still apply

1. Registered capital

A call centre offshore business in the model cities should have a registered capital of at least RMB 1 million.

2. Qualification requirements on the investor

The major investor (i.e. holding at least 30% of the shareholding) in the call centre offshore business should be an existing call centre service operator in the country where it is incorporated, and have a proven track record in the call centre offshore outsourcing business. A private equity fund will therefore fall short of these qualification requirements.

3. Validity term of the approval

The validity term of a trial call centre offshore business approval is five years, which is the same as the term granted to a telecoms licence for value-added telecoms business.

It remains to be seen whether China will evolve to become a viable option for multinational and foreign companies to set up their call centres.