China to lift foreign investment limit in value-added telecom services

China’s telecom regulator announced on 10 April that foreign investment limits on certain value-added telecom services will be lifted in four pilot areas. This move will provide opportunities for foreign investors to expand their presence in sectors such as cloud service, internet of things (IoT) and big data analysis.

Value-added telecom services are regulated businesses in China. As a principle, foreign investors are only allowed to enter into such services that were committed by China upon its WTO accession and hold up to 50% of the share in the businesses. That said, in recent years Chinese government has issued various policies to provide exceptions to this principle and gradually opened up the sector to foreign investors, such as those favourable policies for the free trade zones and Hong Kong and Macau investors. Further, China’s State Council issued a comprehensive action plan earlier in February, advocating for a more robust approach to attract foreign investment and pledging to continuously open up the telecom sector.

On 10 April 2024, the Ministry of Industry and Information Technology (MIIT) released a directive and the associated work plan (collectively as the “Pilot Scheme”, link to official version in Chinese) to further lift foreign investment limits in designated pilot areas in Beijing, Shanghai, Hainan and Shenzhen on six types of value-added telecom services:

• internet data centre (IDC) and content delivery network (CDN) – these two types of licenses are usually required for cloud services. Due to foreign investment restriction, previously global giants like Microsoft and AWS could only partner with local companies to develop their China businesses. With the Pilot Scheme in place, foreign players now may apply for the IDC / CDN license independently;

• internet access service (ISP) – British Telecom became the first foreign company obtaining this ISP license in China back in 2019 and now more foreign players may enter this business area. However, it is worth noting that under the Pilot Scheme, the ISP service must be provided upon the internet access equipment of the state-owned telecom carriers and to users within the pilot areas exclusively (while other services may be provided to users across the country);

• online data processing and transaction processing (EDI) – China has opened the EDI license for e-commerce business to foreign investors as from 2016 and now the scope is expanded to other businesses involving electronic data interchange. This is particularly important for IoT and big data companies;

• information publishing platform and transmission service (excluding internet news service, internet publishing, internet video and audio service and internet cultural service) and information protection and processing service (both under the ICP category) – in short, application stores, anti-virus and cybersecurity services may benefit from the Pilot Scheme, while content service such as online news, video and streaming platforms are still restricted.

Under the Pilot Scheme, governments of the four cities/provinces mentioned above shall formulate detailed implementation plans and submit to the MIIT for approval. Companies intend to operate the six types of value-added telecom services under the Pilot Scheme must satisfy the below conditions:

• obtain approval from the MIIT;
• accept and cooperate with the supervision and administration of the telecom regulator and other relevant regulators;
• be incorporated in one of the pilot areas and locate their service facilities (rented or purchased) in the same pilot areas, and must not purchase or rent CDN or other facilities outside their pilot areas to carry out acceleration services.

The Pilot Scheme may be further expanded to cover other areas in due course, according to the MIIT.