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, and 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 issues that are starting to become of greater concern to telecoms operators.
i The regulators
TMT is one of the broader sectors in China, 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 State Administration of Press, Publication, Radio, Film and Television (news, publications, TV, radio, film, import and export of films, books, music, etc.);
- h the Office of State Commercial Cryptography Administration; and
- i Cyberspace Administration of China (cybersecurity).
ii Main sources of law
The main sources of legislation and regulations governing the TMT sector in China are as follows:
- a Decision of the National People’s Congress Standing Committee to Strengthen Internet Information Protection;
- b the following laws:
• Counterterrorism Law of the People’s Republic of China;
• Electronic Signatures Law;
• Copyright Law;
• Contract Law;
• Advertising Law;
• Cryptography Law (draft for comments);
• State Security Law of China;
• Cyber Security Law of China; and
• Law of the People’s Republic of China on the Protection of Consumer Rights and Interests;
- c the following regulations:
• Regulation for Computer Software Protection;
• Commercial Cryptography Regulations;
• Regulations on the Protection of the Right of Communication through Information Networks;
• Regulations for Protection and Administration of Computer Information Networks;
• Telecommunications Regulation;
• Provisional Regulations for the Administration of Online Culture;
• Radio Regulation of China; and
• Regulations for the Protection of Critical Information Infrastructure Security (draft for comments);
- d the following measures:
• Interim Measures for the Administration of Internet Advertising;
• Measures for the Administration of Telecommunications Construction;
• Measures for the Administration of the Connection of Telecommunications Equipment to Networks;
• 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;
• Measures for the Administration of the Transmission of Audiovisual Programmes over Information Networks such as the Internet;
• Measures for the Administration of Electronic Certification Services;
• Measures for the Registration of Copyright in Computer Software;
• Measures for the Administration of Internet Domain Names in China;
• Measures for the Security Examination of Network Products and Services (for trial implementation);
• Administrative Measures for the Pilot Operation of Value-added Telecommunications Business by Foreign Investors in China (Shanghai) Pilot Free Trade Zone issued by MIIT;
• Interim Measures on Administration of Internet-based Goods and Service Transactions; and
• Measures on Security, Assessment Relating to Export of Personal Information and Important Data (draft for comments);
- e the following provisions:
• Provisions on the Administration of Online Publishing Services;
• Provisions on the Administration of Mobile Internet Applications Information Service;
• Provisions on the Administration of Internet Information Search Services;
• Provisions on Technical Measures for Internet Security Protection;
• Provisions on Administration of the Construction of International Communications Facilities; and
• Provisions on the Administration of Internet Audio-Video Program Services;
- f Notice of the General Office of the General Administration of Press, Publication, Radio, Film and Television on the Administration of Mobile Game Publishing Services;
- g the following catalogues:
• Catalogue of Telecommunications Services by Category (2015); and
• Catalogue of Guidance on Foreign Investment (2017);
- h the following rules:
• Rules for the Administration of Foreign-Invested Telecommunications Enterprises;
• Rules for the Administration of the Interconnection of Public Telecommunications Network;
• Rules for the Administration of the Establishment of Satellite Communications Networks and Installation and Use of Earth Stations;
• Procedural Rules for the Measures of the China Internet Network Information Center for the Resolution of Domain Name Disputes;
• Detailed Implementing Rules for the Measures for the Administration of Commercial Web Site Filings for the Record;
• Provisional Rules for the Administration of Online Publishing;
• Rules on the Protection of Personal Information of Telecommunication and Internet Users;
• Rules on Registration of Real Names of Phone Users; and
• Rules on Allocation of Radio Frequency Band;
- i 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;
- j 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; and
- k Information Security Technology – Guidelines for Data Cross-Border Transfer Security Assessment (draft for comments).
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 will be opened up to foreign investors to participate through foreign capital participation, subject to certain restrictions and strict government approval procedures. In 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 through abidance by the 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 the 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), except in the online data processing and transaction processing business (the foreign proportion of contribution can be 100%)
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. For a foreign-funded telecom enterprise engaging in value-added telecom businesses within a province, autonomous region or municipality directly under the central government, 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. For foreign-funded telecom enterprises engaging in a basic telecom businesses, the examination shall last 180 days; for foreign-funded telecom enterprises engaging in value-added telecom businesses within an area of more than one province, autonomous region or municipality directly under the central government, the examination period would last 90 days.
If approved, the Examination Opinions on Foreign Investment in Telecommunications Services Provision shall be issued; if not, the applicant shall be notified in writing with the reasons therefor stated. Following 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 trans-border 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
An 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 they 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 operators.
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 the 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 from 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 printers 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. 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 the 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.
Providers of network product or services shall observe the regulations to safeguard the cybersecurity and a safe internet environment. According to the Cyber Security Law, providers of network products or services have the following obligations:
- a they shall not set up malicious programs on network products or services;
- b when finding there is any security flaw, vulnerability or other risk in their network products and services, they shall take immediate steps to correct it, inform users in accordance with the relevant provisions and report to the relevant competent departments;
- c they shall provide security maintenance for their products and services; within the time limit regulated by rules or agreed by the parties, they shall not terminate to provide security maintenance;
- d for network products and services that have the function of collecting users’ information, providers shall express to users and obtain the users’ consent; if involving users’ personal information, they shall also abide by regulations on protection of personal information in the current law and relevant laws and administrative rules;
- e critical network equipment and special products for cybersecurity shall be sold or provided only with security certification or security examination by qualified institutions in accordance with compulsory requirements of the relevant national standards.
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, an 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 State Administration of Press, Publication, Radio, Film and Television. Upon approval, a permit to establish a cable television station shall be issued by the State Administration of Press, Publication, 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 MIIT, the State Administration of Press, Publication, 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, and 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 and foreign-funded enterprises, provided that they 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 the applicant has the technologies and equipment meeting the relevant national safety standards, and has the necessary permit for use of encryption for electronic certification services from OSCCA.
VII THE YEAR IN REVIEW
i Further promotion of the application and development of big data and cloud computing
In recent years, China’s cloud computing, big data, internet of things, mobile internet, and other new generation of information and communication technology and new commercial formats, have achieved rapid development and are driving the consumption of information and China’s economic growth. Especially under its ‘Internet +’ policy, China has vigorously fostered an information economy.
In 2015, China issued many policies such as ‘Made in China 2025’, the Opinion of the State Council on the Promotion of Cloud Computing Innovation and Development of New Formats of the Information Industry, Guidance of the State Council on Actively Promoting the ‘Internet +’ Policy, and the Opinion of the General Office of the State Council on Use of Big Data to Strengthen the Services and Supervision on Market Entities. These policies will have far-reaching influence on the big data industry and the continued healthy development of the internet industry.
On 7 January 2016, the Development and Reform Commission issued the Notice on Organising and Implementing Major Projects for Promoting the Development of Big Data to promote the development of big data by relying on the major national construction project libraries. This policy clearly expresses four major development direction of big data projects: to support big data demonstration applications; to support big data sharing development; to support the overall development of infrastructure; and to support the flow of data elements.
ii Cyberspace Administration issues the new Cyber Security Law
The Cyber Security Law, which constitutes the basic law of cyberspace security management in China, was voted to pass by Standing Committee of the National People’s Congress on 7 November 2016, and became effective on 1 June 2017. The Cyber Security Law adopts the principle of limited extraterritorial jurisdiction. Overseas subjects being engaged in intrusions, attacks or other activities that are harmful to critical information infrastructure within the territory of the People’s Republic of China and cause serious consequences shall be investigated for their legal responsibility according to the law, and the law enforcement agencies of China have rights to implement punishment measures such as assets freezes. This is in response to growing global cybersecurity threats.
With regard to the legal system, the Cyber Security Law and some other laws and regulations, such as the National Security Law, Counterterrorism Law, Criminal Law, Cryptography Law, Public Security Administration Punishments Law, Decision of the Standing Committee of the National People’s Congress on Strengthening Information Protection on Networks, Decision of the Standing Committee of the National People’s Congress on Preserving Computer Network Security, Regulations of the People’s Republic of China on Protecting the Safety of Computer Information Systems and Administrative Measures for Internet Information Services, constitute the legal system concerning cybersecurity management of China. Considering that the Cyber Security Law is a framework law, some supporting laws and regulations are published, and some will be formulated and implemented in the future. Enterprises shall pay close attention to developments in this regard.
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. Internet content provision (including blogs, instant messenger, TV, radio, online games, online music and internet news), however, 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 free trade zones, we can see that the government is more willing to open more sectors and shareholdings of telecoms services to foreign investors; which is good news for foreign IT and telecoms enterprises aiming to enter the Chinese market.
China’s regulation of the TMT sector remains quite complex and is 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.