On April 10, 2024, China’s Ministry of Industry and Information Technology (MIIT) issued the Circular on the Pilot Work of Expanding the Openness of Value-added Telecommunications Businesses to the Public, it is a groundbreaking directive to liberalize the value-added telecommunications services (VATS) sector to foreign investment. This move is part of China’s broader strategy to open up its service sectors and integrate more deeply into the global digital economy. This policy change signifies a pivotal shift from previous regulations restricting foreign investments in the telecommunications industry, aiming to stimulate economic growth and technological innovation by attracting foreign expertise and investment.
Here are the main elements of the Circular:
1. Expansion of Foreign Ownership: The Provisions on the Administration of Foreign-Invested Telecommunications Enterprises stipulate that foreign investment in value-added telecommunication services shall not exceed 50 percent of the shareholding. The Circular lifts restrictions on foreign shareholding in specific VATS sectors. Under the new pilot program, foreign investors can establish wholly-owned subsidiaries in the pilot areas. This change applies to internet data centers, content delivery networks, and internet service providers. 2. Pilot Areas: The pilot program is limited to specific geographical regions, which include Beijing’s national comprehensive demonstration zone for expanding opening-up in the service sector, Lingang’s new area of the China (Shanghai) Pilot Free Trade Zone, Hainan Free Trade Port, and the Shenzhen pilot demonstration area of socialism with Chinese characteristics. The governments of the provinces (municipalities) where the above four places are located will put forward pilot implementation programs and report them to the MIIT according to their reality. The MIIT will assess the validation, research, and verification and approve the eligible areas. After the approval of the implementation program, the relevant areas can formally carry out the pilot work. 3. Scope of Services: Liberalization applies to a wide range of value-added telecommunication services, such as online data and transaction processing, as well as certain types of information services. However, it excludes services related to internet news information, online publishing, internet radio and television, internet culture management, and information protection and processing services. 4. Regulatory Requirements: Foreign-invested telecommunication enterprises conducting the aforementioned value-added telecommunication services in the pilot areas shall be regulated by the ‘Consistency between domestic and foreign investment’ principle. Foreign-invested enterprises are required to obtain the relevant pilot approval for the operation of telecommunications business following the Telecommunications Regulations and other provisions, and to comply with the laws and regulations and the applicable provisions of the pilot approval in the operation of telecommunications business, and to accept and cooperate with the supervision and management of the telecommunication regulatory bodies and the relevant competent authorities. 5. Implementation and Oversight: Local governments in the pilot regions are responsible for drafting detailed implementation plans, which must then be approved by the MIIT. This ensures that the pilot aligns with national standards and goals. 6. Strategic Objectives: The policy aims to stimulate the vitality of market entities, promote technological innovation, and integrate China more deeply into the global digital economy. By allowing more foreign ownership and participation, the initiative seeks to enhance the competitive dynamics of the Chinese telecom market and improve the quality of telecom services provided.
These elements represent a significant shift in China’s approach to foreign investment in the telecommunications sector, aiming to create a more open and competitive market environment conducive to innovation and growth in the digital economy.
Besides, the expected impacts of this policy are multifold. Firstly, it aims to enhance the competitiveness of China’s telecommunications sector by fostering a more dynamic and innovative market environment. The influx of foreign investments will likely spur technological advancements and improve service quality. Moreover, this initiative is anticipated to contribute significantly to the growth of China’s digital economy by increasing the supply and quality of digital infrastructure, which is crucial for sectors like e-commerce, cloud computing, and intelligent technologies. In summary, the Circular on the Pilot Work of Expanding the Openness of Value-added Telecommunications Businesses to the Public marks a significant step toward liberalizing China’s telecommunications sector. The successful implementation of this pilot could lead to broader liberalization efforts across other sectors, enhancing China’s economic landscape and its integration into the world market.