In terms of matters relating to TMT, the government has always taken an affirmative position with the intention of constantly harmonising different sets of sector-specific laws and regulations with the rapid development of the TMT industry. Meanwhile, various incentive measures and preferential policies have been designed to ensure the protection and conditions for expansion of fair competition and development of a healthy market.
TMT regulation in China divides all telecommunications into two categories: basic telecommunications services (BTS) and value-added telecommunications services (VATS). BTS essentially refers to the provision of infrastructure facilities and basic voice and data transmissions, both domestically and internationally, while VATS refers to the provision of specialised services via the basic infrastructure facilities. China adopts a strict licensing system for the telecoms industry; telecoms operators are required to obtain a licence to engage in either BTS or VATS. To fulfil its commitments to the World Trade Organization, China is gradually opening up its telecoms industry to foreign investment.
Among all the VATS, internet content services and e-commerce have grown at a very fast pace in recent years. Following the prosperity of the internet industry, online IP infringement, unfair competition and anti-counterfeiting are starting to become of greater concern to telecoms operators.
i The regulators
TMT in China is one of the broader sectors, touching upon a number of different fields of business. The Ministry of Industry and Information Technology (MIIT) is the primary regulatory body in charge of licensing for and administration of BTS and VATS, including internet content or service provision (ICP, ISP and SP) and internet access tariffs and charges. Due to its complex nature, the TMT sector is also governed by other regulatory authorities, including but not limited to:
- a the Ministry of Commerce (e-commerce policy, foreign investment in the TMT sector);
- b the Ministry of Culture (online gaming, internet cultural activities, online music, etc.);
- c the National Development and Reform Commission (IT industry planning and policy);
- d the State Administration for Industry and Commerce and its local branches (consumer rights protection, online advertising, fair competition, registration of entities);
- e the Ministry of Public Security (internet security);
- f the State Council Internet Information Office (coordinating and supervising online content management and handling administrative approval of businesses related to online news reporting);
- g the General Administration of Press and Publication and State Administration of Radio, Film and Television (news, publication, TV, radio, film, import and export of films, books, music, etc.); and
- h the Office of State Commercial Cryptography Administration.
ii Main sources of law
The main sources of legislation and regulations governing the TMT sector in China are as follows:
- • Decision of the National People’s Congress Standing Committee to Strengthen Internet Information Protection;
- • Counterterrorism Law of the People’s Republic of China;
- • Electronic Signatures Law;
- • Copyright Law;
- • Regulation for Computer Software Protection;
- • Contract Law;
- • Advertising Law;
- • Commercial Cryptography Regulations;
- • Interim Measures for the Administration of Internet Advertising;
- • Provisions on the Administration of Online Publishing Services;
- • Provisions on the Administration of Mobile Internet Applications Information Services;
- • Provisions on the Administration of Internet Information Search Services;
- • Notice of the General Office of the General Administration of Press, Publication, Radio, Film and Television on the Administration of Mobile Game Publishing Services;
- • Law of the People’s Republic of China on the Protection of Consumer Rights and Interests;
- • Regulations on the Protection of the Right of Communication through Information Networks;
- • Telecommunications Regulation;
- • Catalogue of Telecommunications Services by Category (2015);
- • Rules for the Administration of Foreign-Invested Telecommunications Enterprises;
- • Measures for the Administration of Telecommunications Construction;
- • Provisions on Administration of the Construction of International Communications Facilities;
- • Rules for the Administration of the Interconnection of Public Telecommunications Network;
- • Measures for the Administration of the Connection of Telecommunications Equipment to Networks;
- • Rules for the Administration of the Establishment of Satellite Communications Networks and Installation and Use of Earth Stations;
- • Measures for the Administration of Telecommunications Service Operating Permits;
- • Measures for the Handling of Disputes Regarding Interconnections between Telecommunications Networks;
- • Measures for the Administration of International Communications Gateways;
- • Measures for the Administration of Internet Information Services;
- • Regulations for Protection and Administration of Computer Information Networks;
- • Provisions on Technical Measures for Internet Security Protection;
- • Interim Measures on Administration of Internet-based Goods and Service Transactions;
- • Measures for the Administration of Electronic Certification Services;
- • Measures for the Administration of the Transmission of Audiovisual Programmes over Information Networks such as the Internet;
- • Procedural Rules for the Measures of the China Internet Network Information Center for the Resolution of Domain Name Disputes;
- • Measures for the Administration of Internet Domain Names in China;
- • Detailed Implementing Rules for the Measures for the Administration of Commercial Web Site Filings for the Record;
- • Provisional Regulations for the Administration of Online Culture;
- • Measures for the Registration of Copyright in Computer Software;
- • Provisional Rules for the Administration of Online Publishing;
- • Radio Regulation of China;
- • Rules on the Protection of Personal Information of Telecommunication and Internet Users;
- • Rules on Registration of Real Names of Phone Users;
- • Rules on Allocation of Radio Frequency Band;
- • Opinions on Further Opening up Value-added Telecommunication Business to Foreign Investments in the China (Shanghai) Pilot Free Trade Zone jointly issued by MIIT and the Shanghai Municipal Government;
- • Administrative Measures for the Pilot Operation of Value-added Telecommunications Business by Foreign Investors in China (Shanghai) Pilot Free Trade Zone issued by MIIT; and
- • Circular for Removing Restriction on Foreign Shareholding in Holder of Online Data Processing and Transaction Processing in China (Shanghai) Pilot Free Trade Zone issues by MIIT.
iii Ownership and market access restrictions
For the purpose of satisfying the demands to open up China’s TMT industry, promote the development of all TMT-related services and enhance business activities along the path of technological advancement, a rapid increase in internet penetration rate and the expansion of mobile broadband networks, the government has formulated relevant laws and administrative regulations as well as various policy strategies to facilitate the growth of the sector. In general, to fulfil China’s commitments to the World Trade Organization, the TMT field in China is going to be opened up to foreign investors to participate through foreign capital participation, subject to certain restrictions and strict government approval procedures. For the telecommunications market, foreign-funded telecoms enterprises are allowed to engage in telecoms businesses within the territory of China subject to government approval, as well as abidance by provisions of the Telecommunications Regulation and other applicable laws and administrative regulations. Foreign investment by way of a sino-foreign equity joint venture, according to Provisions on the Administration of Foreign-funded Telecommunications and the Catalogues of Telecommunication Service issued by MIIT, may be engaged in BTS or VATS. The ultimate proportion of contribution and registered capital required are follows:
Proportion of contribution
Nationwide or beyond a single province, autonomous region or municipality directly under the central government
Not less than 1 billion yuan
Foreign investors: no more than 49 per cent (except radio paging services)
Within a province, autonomous region or municipality directly under the central government
Not less than 100 million yuan
Nationwide or beyond a single province, autonomous region or municipality directly under the central government
Not less than 10 million yuan
Foreign investors: no more than 50 per cent (including radio paging business in basic telecoms services)
Within a province, autonomous region or municipality directly under the central government
Not less than 1 million yuan
The major foreign investor of a foreign-invested telecommunications enterprise providing BTS shall meet the following conditions:
- a being qualified as an enterprise legal person;
- b having obtained a licence for providing BTS from the registration country or region;
- c having the funds and professionals commensurate with its business operation; and
- d having a good performance record and experience in providing BTS.
The major foreign investor in a foreign-invested telecommunications enterprise providing VATS must have a good performance record and experience in providing VATS.
To establish a foreign-invested telecommunications enterprise providing BTS or VATS, the major Chinese investor shall submit the required application documents for approval to MIIT. MIIT shall complete its examination within 30 days from the date of receipt of application documents establishing a foreign-invested telecommunications enterprise and either approve or reject the application. If it is approved, the Examination Opinions on Foreign Investment in Telecommunications Services Provision shall be issued; if it is not approved, the applicant shall be notified in writing with the reasons therefor stated. After the Opinions from MIIT, the major Chinese investor shall submit the contract and articles of association of the enterprise to be established to the Ministry of Commerce, which shall complete its examination within 90 days from the date of receipt and either approve or reject the application.
To provide transborder telecommunications services, the foreign-invested telecommunications enterprise must obtain approval from MIIT and provide its services through the international entry and exit gateway agency, the establishment of which has been approved by MIIT.
iv Transfers of control and assignments
The ownership change or transfer of equity of a foreign-invested telecommunications enterprise shall be subject to prior approval from MIIT. To further strengthen the administration of foreign-invested telecommunications enterprises, MIIT issued a circular in 2006 providing that any domain name or trademark used in VATS business operations should be directly owned by the telecommunications business operator or its shareholders. The circular further provides that the operation site and facilities of a value added telecoms carrier shall be installed within the scope as prescribed by operating licences obtained by the carrier and shall correspond to the VATS that the carrier has been approved to provide. In addition, value added telecoms carriers are required to establish or improve the measures to ensure network security.
III TELECOMMUNICATIONS AND INTERNET ACCESS
i Universal service
Under the current telecoms legal system of China, basic telecommunications operators are required to perform their corresponding obligations to make telecommunications services universally available, in accordance with relevant state regulations. MIIT may determine which telecommunications operators shall assume specific obligations in respect of the universal availability of telecommunications services by designating such operators or by inviting tenders.
MIIT as well as the State Council’s financial department and department in charge of pricing are responsible for formulating the procedures for the administration of the compensation for the costs of making telecommunications services universally available.
In addition, telecommunications operators engaging in domestic telephone business and mobile phone business are required to provide their subscribers with free telecommunications services of a public welfare nature, such as phone numbers for reporting fire-related accidents, bandit-related incidents, medical emergencies and traffic accidents, and the availability of telephone lines shall be guaranteed.
ii Restrictions on the provision of service
Products and equipment subject to a network access permit
Telecoms terminal equipment, wireless communication equipment and equipment used in network interconnection that is connected to public telecommunications networks must adhere to the standards set by the state, and a network access permit must have been obtained.
‘Telecommunications terminal equipment’ refers to equipment that is connected to the end of a public telecommunications network and that provides subscribers with functions to transmit and receive information. This includes fixed telephone terminals, cordless telephone terminals, PBX, faxes, modems (with cards), PABX, mobile user terminals, pagers, ISDN terminals, data terminals (with cards), multimedia terminals and other telecommunications terminal equipment (12 product categories in total).
‘Wireless communications equipment’ refers to equipment that is connected to a public telecommunications network via radio as a means for communication wirelessly. It includes wireless base stations (such as fixed, mobile, paging and repeater stations), microwave communications equipment and satellite earth stations (three categories in total).
‘Network interconnection equipment’ refers to the equipment that permits interconnection and mutual communication between networks of different telecommunications carriers or between networks that provide different telecommunications services. It includes optical transmission equipment, digital program-controlled switching systems (fixed and mobile), VII signalling equipment, intelligent network equipment, synchronisation equipment, access network equipment, frame relay switches, ATM switches, ISDN switches, routing devices, IP gateways in the gatekeeper, data communication equipment (including multiplexing equipment, access to the server, cross-connect devices) and call centre equipment (13 categories in total).
Requirements for manufacturers and operators
Under the network access permit system, the following requirements shall be met by telecommunications equipment manufacturers:
- a telecommunications equipment is allowed to be sold and used within the territory of China only after the relevant network access permit has been secured;
- b enterprises, once having obtained the network access permit, shall promptly report for the record to the telecommunications authorities in the various provinces, autonomous regions and municipalities, and accept the supervision and management of such departments;
- c if there is any modification relating to technology and appearance, such changes shall be tested, and a new application for a new network access permit shall be submitted;
- d manufacturers must ensure that the quality of the equipment for which they have obtained a network access permit is stable and reliable, and they may not lower the quality or performance of their products; and
- e they should affix a sticker presenting the network access permit logo, and the network access certificate stating the certificate number, applicant, name of manufacture, device name, device type and the effective date of the certificate.
The following requirements shall be met by telecommunications operators:
- a they shall gain network access approval prior to using telecommunications equipment;
- b considering that users have the right to choose the telecommunications terminal equipment to be used, no carrier shall prevent subscribers from connecting their own telecommunications terminal equipment for which the network connection permit has been obtained;
- c telecommunications operators shall assist the authorities in conducting examinations of the certified equipment connected to their networks; and
- d major incidents caused by the telecommunications equipment shall be truthfully reported in a brief written report by the telecommunications operator.
Each telecommunications service operator, according to the Telecommunications Regulation, is asked mandatorily to establish and implement a sound system to protect the security and confidentiality of the transmitted information. Such internal security protection system shall be reported to the regional public security bureau. If, during the course of providing public information services, a telecommunications operator discovers information transmitted on its telecommunications network that clearly falls within the scope of illegal content specified by laws or regulations, it shall immediately stop the transmission thereof, keep the relevant records and make a report thereon to the relevant authority.
To safeguard a safe environment and services for internet transactions, e-commerce platform service providers are obliged not only to provide adequate technological methods for protection, but also to take necessary management measures for the smooth operation of the internet transaction platform.
Under current practice, the public security bureau may ask certification authorities to disclose private keys for criminal investigation or national security purposes. According to Electronic Signature Law and Measures for the Administration of Electronic Certification Services, certification authorities are responsible for preserving the information relating to electronic signatures safely.
Compulsory product certification
The China compulsory certification (commonly known as the CCC certification or the 3C certification) is a compulsory safety inspection certification mark required for many products sold or imported into the Chinese market. The CCC certification is required for both locally manufactured products and products imported abroad. To clarify the scope for compulsory product certification, the Administration of Quality Supervision, Inspection and Quarantine and the Certification and Accreditation Administration of the People’s Republic of China collectively announced the First Catalogue of Products Subject to Compulsory Certification (First Catalogue) where the first batch of 19 types of products was released in 2001. The No. 9 category listed in the First Catalogue is information technology equipment, which contains 12 products, including personal computers, portable personal computers, display units connected to computers, printers connected to computers, multipurpose printer and copying machines, scanners, switching power supply units for computers and adapters, chargers, games consoles, e-learning machines, duplicators, servers, finance and trade settlement equipment, etc. As is apparent from this list, most of these products are hardware products. Such products falling under the First Catalogue must obtain CCC certification and be affixed with the appropriate certification mark prior to the sale or use of the products in any commercial activities in China.
Article 8 of Provisions on the Administration of Compulsory Product Certification provides models for conducting the CCC certification as follows:
- a design appraisal;
- b model type testing;
- c sample inspection or testing at the place or places of production;
- d inspection or testing of samples taken from markets;
- e inspection of the conformity of the product’s quality with the quality guarantees provided by the producing entity; and
- f follow-up inspection after obtaining the certification.
IV SPECTRUM POLICY
In terms of telecommunications resources, the central government is trying to carry out uniform planning, centralised administration and reasonable allocation, and implement a system of use with compensation. Telecommunications resources are resources that have telecommunications functions and are limited in amount, including radio frequencies, satellite orbit locations, telecommunications network codes, etc.
A telecommunications operator that occupies or uses telecommunications resources shall pay telecommunications resource fees. MIIT is the major responsible governmental body for formulating specific measures for fee collection for use of telecommunications resources. When MIIT allocates telecommunications resources, it needs to consider factors including telecommunications resource planning, usage and expected service capability. The allocation of telecommunications resources may be made either by designation or by auction. To date, no auctions have been conducted.
Without the approval of MIIT, the operator may not unilaterally use, transfer or lease out telecommunications resources or change the use of telecommunications resources. After a user of telecommunications resources obtains a telecommunications network code, major telecommunications operators or other relevant parties shall be obligated to take the necessary technical measures to cooperate with such user of telecommunications resources to allow it to achieve functionality of its telecommunications network code resources.
i Restrictions on the provision of service
China has systematic restrictions on TV and radio content provision and transmission.
Radio or television stations shall be established by the administrative departments for radio and television under the people’s governments, and educational television stations may be established by the administrative departments for education under the people’s governments at or above the level of a city divided into districts or an autonomous prefecture. No other entity or individual may establish radio or television stations.
The state prohibits the establishment of radio or television stations in the form of foreign-funded enterprises, sino-foreign equity joint ventures or sino-foreign cooperative joint ventures.
An entity that intends to establish a cable television station shall obtain the preliminary consent of the competent department of radio and television of the province and apply for the approval of the Ministry of Radio, Film and Television. Upon approval, a permit to establish a cable television station shall be issued by the Ministry of Radio, Film and Television to the applying entity. An entity that intends to establish a small cable television station shall obtain the preliminary consent of the competent department of radio and television of the county, and apply for the approval of the competent department of radio and television of the province. Upon approval, a permit to establish a small cable television station shall be issued by the competent department of radio and television of the province to the applying entity.
An entity or individual that intends to set up master antenna television shall report to the department of radio and television of the county for its records.
An entity that intends to utilise its existing ground satellite receiving facilities or install special ground satellite receiving facilities to receive television programmes transmitted via foreign satellites shall apply in writing to the competent department at or above the provincial level. If consent is granted thereto upon examination, the applying entity shall proceed to submit the application for examination and approval to the department (or bureau) of radio and television of the province, autonomous region or municipality directly under the central government where the applying entity is located. Upon approval by the department (or bureau) of radio and television, a permit to receive television programmes transmitted via foreign satellites shall be issued to the applying entity, and the case shall be reported by the examining and approving authorities to the Ministry of Radio, Film and Television, the Ministry of Public Security and the Ministry of State Security for their records.
ii Internet-delivered video content
An entity that intends to provide internet audio-video programme-related services shall obtain a permit for audio-video programmes transmitted through an information network (permit) issued by the competent radio, film and television authority, or go through the formalities for registration in accordance with the provisions of these regulations.
No entity or individual that has not obtained a permit issued by the competent radio, film and television authority, or that has not gone through the formalities and legal steps for registration in accordance with the laws and regulations, may provide internet audio-video programme-related services.
VI ENCRYPTION PRODUCTS
The Office of State Commercial Cryptography Administration (OSCCA) is the main supervision government department for commercial encryption activities; it is in charge of the administrative affairs of commercial encryption in the country. When it comes to activities relating to encryption products such as sales, use, import and export, promotion and exhibition, prior approval must be secured. Any individual or entity is only allowed to use the certified encryption products within the range approved by OSCCA and is expressly prohibited from selling any self-developed or overseas manufactured encryption products and equipment. Transferring such products and equipment with encryption technology is strictly forbidden as well.
Foreign investment enterprises, including sino-foreign equity joint ventures, sino-foreign contractual joint ventures, foreign-funded enterprises, provided that they must use encryption products manufactured overseas for interconnection and intercommunication with overseas parties for their actual business needs, may apply for the use of encryption products manufactured overseas to a local encryption administrative department, which will examine the application and submit it to OSCCA for approval. When an overseas organisation (an organisation set up outside China under foreign law, including the branch institutions, offices, representative offices, etc. established by it inside China) or an individual (a person who does not have the Chinese nationality under the Nationality Law of the PRC) intends to use an encryption product within China, no matter whether the product is manufactured inside China or overseas, he, she or it shall file an application to the local encryption administrative department who will examine the application and submit it to OSCCA for approval.
When an entity applies to provide electronic certification services, it is required to acquire a permit for use of encryption for electronic certification services from OSCCA and a licence for electronic certification services from MIIT. As the secondary examination department, MIIT will review and examine whether or not the applicant has the technologies and equipment meeting the relevant national safety standards and has the permit for use of encryption for electronic certification services from OSCCA.
VII THE YEAR IN REVIEW
i China further opens the value-added telecommunications sector in the Shanghai Free Trade Zone
On 6 January 2014, MIIT and the Shanghai municipal people’s government jointly issued the Opinions on Further Opening Value-added Telecommunications Services in China (Shanghai) Free Trade Zone (Opinions), which confirm and further clarify the trial liberalisation of foreign investment in certain sections of the VATS sector in the China (Shanghai) Pilot Free Trade Zone (SFTZ). As a pilot project, businesses that engage in information services (app stores only) and storage and forwarding services are no longer subject to a cap on the percentage of registered capital held by foreign investors, while those that conduct operational e-commerce activities, which are classified as ‘online data processing and transaction processing’, are now subject to a 55 per cent cap. Meanwhile, on a trial basis, call centre services, domestic multiparty telecommunications services and internet access services to online users are newly opened to foreign investment within the SFTZ with no cap on foreign shareholding. The Opinions also newly open domestic internet virtual private network services to foreign investment, subject to a 50 per cent cap for trial. The registered office and servers of platform e-commerce service providers must be located in the SFTZ, and internet access services to online users may be offered only within the SFTZ.
On 15 April 2014, the MIIT promulgated the Measures on the Administration of the China (Shanghai) Pilot Free Trade Zone for Pilot Foreign Investment in the Operations of Value-added Telecommunications Services (Measures). As well as specifying the conditions and documentary and procedural requirements that must be satisfied to operate a foreign-invested enterprise that engages in the provision of VATS, the Measures delegate the final approval authority from MIIT to the Shanghai Communications Administration (SCA) and shorten the approval period from 150 days to 60 days. Hence, the Measures consolidate what is normally a two-step process for obtaining a VATS operating licence into a one-step procedure that is carried out directly with the SCA. The Measures also set forth requirements on regulating the operation of VATS enterprises, maintaining the legitimate rights and interests of users, protecting user information, maintaining network and information security, and implementing the pilot programme through the establishment of a pilot information submission system and an annual inspection requirement.
On 13 January 2015, MIIT released the Circular on Lifting Restrictions on the Foreign Equity Ratio for Online Data and Transaction Processing Businesses in the China (Shanghai) Pilot Free Trade Zone, which removes previous shareholding restrictions on foreign investors in e-commerce businesses that provide online data processing and transaction processing services within the SFTZ. As a result, foreign investors are now allowed to hold up to 100 per cent of all equity interests in these businesses.
On 19 June 2015, MIIT promulgated a new circular, the Circular on Lifting Restrictions on the Foreign Equity Ratio for Online Data Processing and Transaction Processing Business (Circular No. 196), which allows foreign investors to hold up to 100 per cent equity interest in e-commerce operations nationwide in China. Under Circular No. 196, MIIT authorised telecommunications administrations at the provincial level to implement the new policy, review foreign investors’ applications and issue the relevant qualification and operation licences to foreign-invested e-commerce companies.
ii MIIT issues the new Catalogue of Telecommunications Services (2015)
On 28 December 2015, MIIT issued the new Catalogue of Telecommunications Services, which came into force on 1 March 2016. Given the pace of technological innovation in the telecommunications sector, the current Catalogue, which was issued in 2003, is outdated. Under the new Catalogue, BTS is still classified into two categories: the First Class of BTS and the Second Class of BTS, but the Catalogue adjusts and refines the business of IP phones, cellular mobile communication business, satellite communication business, internet data transmission business, network access facility business, etc. As to VATS, the Catalogue readjusts and merges the subclasses included in the First Class of VATS and the Second Class of VATS: now all the services in the First Class of VATS are services based on facilities and resources, while all the services in the Second Class of VATS are services based on public application platforms; the Catalogue also clearly defines the content delivery network business, code and code conversion business and refines the internet data centre business, call centre service and information service business. In consideration of technology innovation, business development and other elements, the Catalogue removed the licences for business of public telegram and telex, business of analogue trunking communication and business of wireless data transfer; however, those who had already obtained the above licences could continue to provide their services.
Among the telecom businesses, information service business (ISB) in the Second Class of VATS is one of the most active fields in China. The old Catalogue divided ISB on the division mode of network technologies which can no longer satisfy the actual need of market development, according to the technical features of information service transmission and organisation, etc. ISB now is subdivided into five business forms: information release platform and delivery service, information search query service, information community platform service, information real-time interactive service, and information protection and processing services. The operator shall apply the specific licence based on its actual service.
VIII CONCLUSIONS AND OUTLOOK
To fulfil China’s commitments to the World Trade Organization, we believe the VATS market will be gradually opened up to foreign investors. In terms of internet content provision, however (including blogs, instant messenger, TV, radio, online games, online music and internet news), this is still strictly regulated by the government, which has no plans to allow foreign investment in these areas.
From the recent policies and regulations issued by the central government on FTZs, we can see that the government is more willing to open more sectors and shareholdings of telecoms services to foreign investors. This is good news for foreign IT and telecoms enterprises aiming to enter the Chinese market, China’s regulation of the TMT sector is quite complex and rapidly changing; therefore, when an entity enters into this market, it is advisable to seek legal advice from professional TMT lawyers.
1 Jihong Chen is a partner at Zhong Lun Law Firm.