This article was first published in Asian-Counsel magazine, issue March 2008 www.pbpress.com
Before and after its accession to the WTO the PRC has made tremendous efforts in opening its market for foreign investors in order to be WTO compliant. Somewhat surprisingly though, in the past year, some industries saw the implementation of new restrictions rather than relaxation of the existing regulations. While those restrictions may still be compliant with the WTO commitments, they nevertheless harm foreign investors that relied on the prior regulations.
To provide one example, last year a specialist sector in the industry of automotive suppliers, namely suppliers for car navigation systems, was severely hit by new regulations issued by the State Bureau of Surveying and Mapping ("SBSM"). Until recently, commercial surveying and mapping in the PRC was allowed under PRC law for foreign invested companies in the form of minority shareholding in equity joint ventures or cooperative joint ventures. This has changed as of 1 March 2007, when the SBSM issued regulations according to which "producing electronic navigation maps" is expressly prohibited to foreigners. Further restrictions were made as of 19 November 2007, when the SBSM promulgated the Circular on Relevant Regulations Concerning the Administration of Electronic Navigation Map (Guo Ce Tu Zi [2007] No. 7) ("Circular"). Clause 2 of the Circular defines that 'producing electronic navigation maps' includes without limitation the activities of compilation, processing, format conversion and the quality testing of electronic navigation maps. Subsequently, the amended PRC Guiding Catalogue for Foreign Investment (effective as of 1 December 2007) listed "producing of normal map-oriented electronic navigation maps" under the "prohibited category" to any form of foreign participation in the PRC.
On first sight, the abovementioned restrictions which the PRC government implemented appear to be not too surprising. After all, map data is, at least in part, considered a state military secret and foreign participation in the area of mapping could create a national security concern. However, one should keep in mind the business operations of car navigation system manufacturers. Simply put, car navigation systems are a combination of the actual hardware device, navigation software and mapping data. Navigation software developers buy mapping data, compile and implement the same into their software and sell the same to the hardware producer.
The required mapping data was and is freely available in the PRC. Prior to the Circular, the software producers were able to compile the mapping data themselves. Since the Circular is in effect, the compilation of mapping data and implementation of the same into navigation software is deemed to be "producing navigation maps", hence making it now illegal for foreign invested entities to be engaged in such business. It appears that one way out would be to engage one of the few fully licensed PRC domestic enterprises to compile the mapping data. However, such business model is risky as it could mean that the software developers have to provide the PRC entity with detailed information of its software and therefore risks loosing valuable know how and intellectual property rights.
Other high tech industries are similarly affected and the aforementioned new PRC Guiding Catalogue for Foreign Investment also lists a few other industries, for example media or real estate, which will or are already facing more restrictive regulations for foreign investors. While the new post WTO restrictions may still be WTO compliant, such restrictions send a wrong signal to foreign investors as it may appear that the PRC returns to a policy of protectionism. In any event, foreign investors are well advised to keep up to date with new regulatory developments that may affect their current business model.
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