On January 6th, 2014, deciding to further open up value-added telecom services in the China (Shanghai) Pilot Free Trade Zone (the "Shanghai FTZ"), the Ministry of Industry and Information Technology and the People's Government of Shanghai Municipality jointly promulgated the Opinions on Further Opening up Value-added Telecom Services in China (Shanghai) Pilot Free Trade Zone (the "Opinions").
Further Opening Up of Seven Types of Value-added Telecom Services
According to the Opinions, seven types of value-added telecom services will be further opened up in the Shanghai FTZ as follows:
(i) Foreign investors may hold more than 50% equity interests in apps store services (which is covered by the catalogue of information services) and store-and-forward services, while according to a previous opening up commitment made to the WTO, the equity interests held by foreign investors in such businesses were restricted to 50%. The Opinions does not identify any cap of the equity interests held by foreign investors in such businesses.
(ii) The equity interests held by foreign investors in operational electronic commerce (which is covered by the catalogue of online data processing and transaction processing services) is opened up to no more than 55%; and
(iii) Four types of services are newly opened up to foreign investors:(a) call center services, (b) domestic multi-party communication services, (c) Internet access services provided for online users, and (d)domestic Internet protocol virtual private network services. The equity interests held by foreign investors in item (a), (b) and (c) may exceed 50% without limitation, while the equity interests held by foreign investors in item (d) shall not exceed 50%. Details of the types and catalogues of value-added telecom services are provided in the attached Schedule.
In summary, in the Shanghai FTZ, foreign investors may: (i) establish a wholly foreign owned enterprise to provide the following value-added telecom services: (a) apps store services (which is covered by the catalogue of information services), (b) store-and-forward services, (c) call center services, (d) domestic multi-party communications services, and (e) Internet access services provided for online users; and (ii) establish a Sino-foreign joint venture company to provide the following value-added telecom services: (x) operational electronic commerce (which is covered by the catalogue of online data processing and transaction processing services, and the equity interests in which held by foreign investors shall not exceed 55%) and (y) domestic Internet protocol virtual private network services (the equity interests in which held by foreign investors shall not exceed 50%).
Facilities and Scope of Services
The Opinions imposes requirements on the facilities and scope of services of enterprises engaging in the opened up value-added telecom services. Specifically, the registered address and service facilities of the enterprise applying for the engagement in the aforesaid value-added telecom services shall be located in the Shanghai FTZ. In addition, the Internet access services provided for online users may only be provided to users within the Shanghai FTZ, while the other services may be provided to the nation.
Protective Measures
The Opinions further requires that, in order to facilitate the implementation of the pilot policies, protective measures should be made for the formulation of detailed rules, creation of environment, improvement of services, and enhancement of administration. The relevant provisions of the Administrative Provisions on Foreign-Invested Telecom Enterprises (Order of the State Council No. 534) shall be suspended from implementation within the Shanghai PTZ. Relevant authorities will also accelerate the formulation of pilot administrative measures, adjust relevant administration systems, simplify relevant approval procedures and shorten approval timelines. We will follow up with subsequent detailed rules.
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