An extract from The Technology, Media and Telecommunications Review, 11th Edition

Overview

In terms of matters relating to TMT, the government has always taken an affirmative position with the intention of constantly harmonising different sets of sector-specific laws and regulations with the rapid development of the TMT industry. Meanwhile, various incentive measures and preferential policies have been designed to ensure the protection and conditions for the expansion of fair competition and the development of a healthy market.

TMT regulation in China divides all telecommunications into two categories: basic telecommunications services (BTS) and value-added telecommunications services (VATS). BTS essentially refers to the provision of infrastructure facilities and basic voice and data transmissions, both domestically and internationally, while VATS refers to the provision of specialised services via the basic infrastructure facilities. China adopts a strict licensing system for the telecoms industry, and telecoms operators are required to obtain a licence to engage in either BTS or VATS. To fulfil its commitments to the World Trade Organization, China is gradually opening up its telecoms industry to foreign investment.

Among all the VATS, internet content services and e-commerce have grown at a rapid pace in recent years. Following the prosperity of the internet industry, online IP infringement, unfair competition and anti-counterfeiting and cybersecurity risks are issues that are starting to become of greater concern to telecoms operators.

Regulation

i The regulators

TMT is one of the broader sectors in China, touching upon a number of different fields of business. The Ministry of Industry and Information Technology (MIIT) is the primary regulatory body in charge of licensing for and administration of BTS and VATS, including internet content or service provision (ICP, ISP and SP) and internet access tariffs and charges. Due to its complex nature, the TMT sector is also governed by other regulatory authorities, including but not limited to:

  1. Ministry of Commerce (e-commerce policy, foreign investment in the TMT sector);
  2. Ministry of Culture (online gaming, internet cultural activities, online music, etc.);
  3. National Development and Reform Commission (IT industry planning and policy);
  4. State Administration for Market Regulation and its local branches (consumer rights protection, online advertising, fair competition, registration of entities);
  5. Ministry of Public Security (internet security);
  6. Office of the Central Cyberspace Affairs Commission (coordinating and supervising online content management and handling administrative approval of businesses related to online news reporting);
  7. National Radio and Television Administration (news, publications, TV, radio, film, import and export of films, books, music, etc.);
  8. State Intellectual Property Office (patent, trademark and geographical indication);
  9. the Office of State Commercial Cryptography Administration;
  10. Cyberspace Administration of China (cybersecurity); and
  11. National Information Security Standardisation Technical Committee (issuing standards related to cybersecurity).
ii Main sources of law

The main sources of legislation and regulations governing the TMT sector in China are as follows:

  1. Decision of the National People's Congress Standing Committee to Strengthen Internet Information Protection;
  2. the following laws:
    • Data Security Law (Draft);
    • Advertising Law;
    • Counterterrorism Law;
    • Copyright Law;
    • Contract Law;
    • Cyber Security Law;
    • Cryptography Law;
    • E-Commerce Law;
    • Electronic Signatures Law;
    • Foreign Investment Law;
    • Law of the PRC on the Protection of Consumer Rights and Interests;
    • Standardisation Law; and
    • State Security Law of China;
  3. the following regulations:
    • Telecommunications Regulations;
    • Regulations for the Management of Commercial Cryptographic (Revised Draft for Comments);
    • Regulations for the Management of Online Publishing Services;
    • Regulations for the Management of Radio and Television;
    • Regulations for the Protection of the Right of Communication through Information Networks;
    • Regulations for the Security Protection of Computer Information System;
    • Regulations for the Protection of Computer Software;
    • Regulations for the Protection of Security of Critical Information Infrastructure (draft for comments);
    • Regulations on Multi-level Protection for Cybersecurity (Exposure Draft); and
    • Provisional Regulations for the Administration of Internet Culture;
  4. the following measures:
    • Measures for Cybersecurity Review;
    • Measures on Pilot Scheme for Foreign-funded Value-added Telecommunications Businesses in China (Shanghai) Pilot Free Trade Zone;
    • Measures for the Administration of Telecommunications Construction;
    • Measures for the Administration of the Connection of Telecommunications Equipment to Networks;
    • Measures for the Administration of Telecommunications Business Permits;
    • Measures for the Handling of Disputes Regarding Interconnections between Telecommunications Networks;
    • Measures for the Administration of International Communications Gateways;
    • Measures for the Administration of Internet Information Services;
    • Measures for the Administration of Services of Private Network and Directional Transmission of Audio-Visual Programmes;
    • Measures for the Administration of Electronic Certification Services;
    • Measures for the Administration of Internet Domain Names;
    • Interim Measures for the Administration on Use and Maintenance of Internet Information Security Management System;
    • Measures for the Registration of Copyright in Computer Software;
    • Interim Measures for the Administration of Internet Advertising;
    • Interim Measures for the Administration of Online Car Hailing Services;
    • Interim Measures for the Administration of Online Tourism Operating Services;
    • Measures for the Security Assessment of Export of Personal Information and Important Data (draft for comments);
    • Measures for the Security Assessment for Cross-border Transfer of Personal Information (draft for comments);
    • Measures for the Administration of Qualification of Secret-involved Information System Integration;
    • Measures for the Administration of Online Transactions; and
  5. the following provisions:
    • Provisions on the Cyber Protection of Children's Personal Information;
    • Provisions on the Ecological Governance of Network Information Content;
    • Provisions for the Administration of Online Audio and Video Information Services;
    • Provisions on the Network Ecology Governance (Draft for Comments);
    • Provisions for the Administration of Mobile Internet Applications Information Service;
    • Provisions for the Administration of Internet Information Search Services;
    • Provisions for the Administration of the Construction of International Communications Facilities;
    • Provisions for the Administration of Internet Audio and Video Programming Services;
    • Provisions for the Administration of Internet News Information Services;
    • Provisions for Technical Measures of Internet Security Protection; and
    • Provisions on the Security Assessment of Internet-based Information Services with Attribute of Public Opinions or Capable of Social Mobilisation;
  6. the following catalogues and lists:
    • Catalogue of Certification for Commercial Encryption Products (Batch 1);
    • Catalogue of Telecommunications Services;
    • Catalogue of Network (Cyber) Critical Equipment and Cybersecurity-Specific Products (Batch 1);
    • Catalogue of Guide of Foreign Investment;
    • Industry Guidelines on Encouraged Foreign Investment (July 2020 Draft for Comments);
    • Negative List of Access of Foreign Investment; and
    • Negative List for Foreign Investment Access in Pilot Free Trade Zones;
  7. the following rules:
    • Rules for the Commercial Password Product Certification;
    • Rules for the Administration of Foreign-Invested Telecommunications Enterprises;
    • Rules for the Administration of the Interconnection of Public Telecommunications Network;
    • Rules for the Administration of the Establishment of Satellite Communications Networks and Installation and Use of Earth Stations;
    • Rules for the Protection of Personal Information of Telecommunication and Internet Users;
    • Rules for the Allocation of Radio Frequency Band;
    • Rules for the Registration of Real Names of Phone Users; and
    • Procedural Rules for the Resolution of Domain Name Disputes by China Internet Network Information Centre;
  8. the following national standards:
    • Information Security Technology – Cyber-data process security specification;
    • Information Security Technology – Method of boundary identification for critical information infrastructure;
    • Information Security Technology – The evaluation method for security protection capability of critical information infrastructure;
    • Information Security Technology – Assessment Method for Security Capability of Cloud Computing Service;
    • Information Security Technology – Security Capability Requirements for Big Data Services;
    • Information Security Technology – Guide of Information Security Risk Assessment;
    • Information Security Technology – Guide of Assessment for Data Cross-Border Transfer Security (draft for comments);
    • Information Security Technology – Guide of Personal Information Protection in Public and Commercial Services Information System;
    • Information Security Technology – Guide of Personal Information Security Specification;
    • Information Security Technology – Guide of Assessment for Personal Information Security Impact;
    • Information Security Technology – Baseline for Classified Protection of Cybersecurity;
    • Information Security Technology – Technical Requirements of Security Design for Classified Protection of Cybersecurity;
    • Information Security Technology – Evaluation Requirements for Classified Protection of Cybersecurity; and
  9. the following guidelines:
    • Guidelines for the Development of Data Security Standard Systems in the Telecommunications and Internet Industries (Draft for Comment);
    • Guidelines for the Developing the National Next-Generation Artificial Intelligence Standard System;
    • Guidelines for the Development of a System of Network Data Security Standards (Draft for Comment); and
    • Guidelines for the Classification and Grading of Industrial Data (Interim);
    • Notice of the Administration of Mobile Game Publishing Services, issued by the National Radio and Television Administration;
    • Opinions on Further Opening up Value-added Telecommunication Business to Foreign Investments in the China (Shanghai) Pilot Free Trade Zone, jointly issued by MIIT and the Shanghai municipal government; and
    • Circular for Removing Restriction on Foreign Shareholding in Holder of Online Data Processing and Transaction Processing in China (Shanghai) Pilot Free Trade Zone, issued by MIIT.

The main statute governing telecoms services is the Regulations for the Management of Telecommunications, supported by the Catalogue of Telecommunications Services. Foreign-invested companies may refer to the Catalogue of Guide of Foreign Investment, Industry Guidelines on Encouraged Foreign Investment, and Negative List of Access of Foreign Investment for additional restrictions and requirements imposed on acquiring telecom licences.

iii Regulated activities

A telecommunications operator who operates basic telecommunications services or VATS (as classified in the Catalogue of Telecommunications Services) shall obtain a licence under the Measures for the Administration of Telecommunications Service Operating Permits or the Rules for the Administration of Foreign-Invested Telecommunications Enterprises.

iv Ownership and market access restrictions

The newly revised Foreign Investment Law in 2019 and the statements of the high-profiles in recent years reveal China's willingness to be more open to foreign investors in the TMT field, which was also one of China's commitments to the World Trade Organization.

With certain restrictions and regulatory approval procedures, foreign-funded telecoms enterprises are able to engage in telecoms businesses not prohibited by the Negative List of Access of Foreign Investment or Negative List for Foreign Investment Access in Pilot Free Trade Zones (if applicable) provided that they abide by the provisions of the Regulations for the Management of Telecommunications and other applicable laws and regulations.

BTS and VATS are available to foreign investment by way of a Sino-foreign equity joint venture. To establish a foreign-invested telecommunications enterprise providing BTS or VATS, the major Chinese investor shall submit the required application documents for approval to MIIT.

The ultimate proportion of contribution and registered capital required for BTS business are as follows.

Business classificationsGeographical areasRegistered capitalProportion of contribution
BTS businessNationwide, or beyond a single province, autonomous region or municipality directly under the central governmentNot less than 1 billion yuanForeign investors: no more than 49% (except radio paging services and the construction and operation of power grid systems)
Within a province, autonomous region or municipality directly under the central governmentNot less than 100 million yuan

The major foreign investor of a foreign-invested telecommunications enterprise providing BTS shall meet the following conditions:

  1. being qualified as a legal person or enterprise;
  2. having obtained a licence for providing BTS from the registration country or region;
  3. having the funds and professionals commensurate with its business operation; and
  4. having a good performance record and experience in providing BTS.

Advantages enjoyed by the foreign investors in Shanghai Pilot Free Trade Zone (Shanghai FTZ) have become more obvious, particularly in VATS business. The availability of VATS for foreign investors in Shanghai FTZ is summarised in the following chart.

Type of VATSAvailabilityMaximum foreign equity ratio
B11 Internet data centre services×\
B12 Content delivery network services×\
B13 Domestic internet protocol virtual private network services≤50%
B14 Internet access servicesRestricted to ISP service provided to internet users, ≤100%
B21 Online data processing and transaction processing servicesE-commerce, ≤100%; others, ≤50%
B22 Domestic multiparty communication services≤100%
B23 Store-and-forward services≤100%
B24-1 Domestic call centre services≤100%
B24-2 Offshore call centre services≤100%
B25 Information servicesApp store, ≤100%; others, ≤50%
B26-1 Internet domain name resolution services≤50%

The chart below compares the substantive and procedural differences in foreign investors' application for a VATS licence in Shanghai FTZ and non-free trade areas.

Shanghai FTZNon-free trade areas
AuthorityShanghai Communications Administration (SCA)Ministry of Industry and Information Technology (MIIT)
TimelineWithin three months.Around one year in practice.
RequirementsLegally established in the FTZ. Registered capital ≥ 1 million yuan. The place of registration and service facilities of enterprises shall be located within Shanghai FTZ (for operating e-commerce business of ODPTP, the service facilities could be located outside Shanghai FTZ, but should still be located within Shanghai).

The foreign investor has a record of good performance and operating experience in operating VATS business. Business description and supporting certificates should be provided.

For providing service nationwide or across different provinces, registered capital ≥ 10 million yuan.

For providing service within a province, registered capital ≥ 1 million yuan.

The foreign investor has a record of good performance and operating experience in operating VATS business. Business description and supporting certificates should be provided.
iv Transfers of control and assignments

An ownership change or transfer of equity of a foreign-invested telecommunications enterprise shall comply with China's laws and regulations on investor qualifications and industrial policy requirements. First, the ownership change or transfer of equity of a foreign-invested telecommunications enterprise shall not violate the Catalogue of Guide of Foreign Investment and the Negative List of Access of Foreign Investment or Negative List for Foreign Investment Access in Pilot Free Trade Zones (if applicable). In addition, in TMT industries, MIIT and its branches and the Administrative, Industrial and Commerce authorities may review such transactions.

The enterprise shall, within 30 days of the date on which the examination and approval authority approves the change or the transfer, go through the formalities regarding that examination and approval authority. If the Chinese investor in a joint venture will obtain the entire equity, it shall, within 30 days of the date of approval by the examination and approval authority, cancel the certificate of the foreign-invested enterprise to the examination and approval authority. The enterprise shall, within 30 days of the date of change or cancellation of the foreign-invested enterprise approval certificate, apply to the registration authority for registration of change.