China expands foreign investment in value-added telecommunications services through pilot programme

On 8 April, the Ministry of Industry and Information Technology (MIIT) issued the Circular on Launching the Pilot Programme for Expanding the Opening-up of Value-Added Telecommunications Services.

Prior to this announcement, China had long regulated foreign investment in the telecommunications sector with varying degrees of restrictions across different services. In the value-added telecommunications services (VATS) sector, certain areas such as e-commerce, domestic multi-party communications, store-and-forward services and call centres have seen a relaxation of foreign investment restrictions, with the foreign shareholding limit increased from 50% to 100%. However, other VATS areas, such as internet data centres (IDC), content delivery networks (CDN), and internet service providers (ISP), remain subject to foreign investment restrictions.

This pilot programme is part of an initiative in China to expand foreign investment in the telecommunications sector and optimise the foreign-investment environment by liberalising foreign investment restrictions in specific VATS sectors and signalling a commitment to continue its ‘opening-up’ efforts.

Pilot programme

The key aspects of the pilot programme outlined in the 8 April Circular include the follow:

• Pilot Regions: The pilot programme will be initially implemented in four regions – Beijing’s Comprehensive Demonstration Area for Expanding Opening-up in the Services Sector; Shanghai’s Lingang New Area of the Pilot Free Trade Zone and the Leading Area for Socialist Modernisation; Hainan Free Trade Port; and Shenzhen’s Demonstration Pilot Zone for Socialism with Chinese Characteristics.
• Relaxation of Foreign Shareholding Limits: In the approved pilot regions, the foreign shareholding limits will be lifted for IDC, CDN, ISP, online data and transaction processing, and certain types of information services such as information release platforms and delivery services (excluding internet news information, online publishing, online audiovisual, and internet cultural business), and information protection and processing services.
• Implementation Plan and Assessment: The local governments of the pilot regions are responsible for formulating detailed implementation plans and conditions based on the Pilot Programme for Expanding the Opening-up of Value-Added Telecommunications Services (attached to the Circular). The MIIT will organise the assessment and approval of the implementation plans and conditions submitted by the four pilot regions.
• Application and Compliance: Foreign-invested telecom enterprises (FITEs) intending to conduct the aforementioned VATS businesses in the pilot regions must apply to the MIIT for a pilot programme operating permit and comply with the laws, regulations, and the provisions of the operating permit. The specific application process and requirements for the application, however, are subject to further clarification and will likely be subject to the implementation plans and conditions set forth by the pilot regions. Foreign investors should closely follow any updates or clarifications from the authorities regarding the application process and requirements.
• Potential Expansion: Based on the implementation of the programme, the scope of the pilot regions may be expanded.

Significance and outlook

The pilot programme represents another step in China’s efforts to continue to open up and optimise foreign investment in the telecom sector. By lifting foreign shareholding limits in selected VATS sectors within the pilot regions, China aims to attract foreign investment, stimulate market vitality, enhance service quality, and promote high-quality development of the information and communications industry. The success of the pilot programme may lead to further liberalisation of foreign investment in China’s telecom sector.

As the pilot programme unfolds, foreign investors should closely monitor the formulation and approval of the implementation plans in the pilot regions. Once the plans are finalised, investors can assess potential opportunities and apply for the necessary permits to enter the relevant Chinese VATS market in the pilot regions. Foreign investors, however, should be aware of any potential challenges or risks associated with investing in China’s VATS market, such as regulatory uncertainties, data security requirements, and competition from domestic players.

The full text of the Circular and its attachment can be accessed here (only Chinese language available).

For more information on this pilot project and investment in China’s telecom sector, contact your CMS client partner or these CMS experts.