On 10 April 2024, the Ministry of Industry and Information Technology, or MIIT, issued the Notice on the Pilot Program for Expanding the Opening up of Value-added Telecommunications Services《关于开展增值电信业务扩大对外开放试点工作的通告》 (MIIT Notice [2024] No. 107, or Notice No.107), trying to further expand the scope of Value-added Telecommunications Services, or VATS, in four pilot places in China. This will be favorable for foreign investors coming into cloud services, network access, data processing, APP shops and other services. Hui Ye Cyber and Data Team briefly explains Notice No.107 as follows, for reference only.

1. The Understanding of “Abolition of foreign equity ratio restrictions”

According to the Telecommunications Regulations《电信条例》 and the Provisions on the Administration of Foreign-Invested Telecommunications Enterprises《外商投资电信企业管理规定》, shareholdings of foreign investors which engaged in VATS are limited to 50%. The Notice No.107 has further eliminated the equity ratio restriction in the pilot area, in other words, shareholdings could exceed 50% up to 100% if the enterprises invest in the pilot opening services category. That means the enterprise could be wholly owned by foreign investors.

2. Pilot Opening-up Service Category

3. Pilot Opening-up Areas

According to Notice No.107, the pilot project is limited to the following four regions:

a)Beijing Integrated National Demonstration Zone for Opening up the Services Sector

b)Lingang section of Shanghai Pilot Free Trade Zone and Socialist Modernization Leading Area

c)Hainan Free Trade Port; and

d)Shenzhen Pilot Demonstration Area of Socialism with Chinese characteristics

In addition, it is required that the place of registration, excluding office, and service facilities, usually referring to server rooms or servers, by applicated investors should be within the pilot opening area. Except for B14 ISP, other services can operate business nationwide.

1. IDC and CDN Business

Following the release of Notice No.107, impacts on the cloud services industry can be seen clearly. It would re-invigorate foreign investors to apply for licenses directly, especially under the background of previous data cross-border policy restrictions. However, considering the regional restrictions on infrastructure, foreign-funded cloud service providers still have many challenges to face if they want to directly carry out full-scale operational activities in China under the Notice No.107, such as the application process of building an ICP/IP address/domain information filing system, an access resource management platform, an information security management system, passing the relevant assessments/record filing and others.

2. ISP Business

Issues Related to the Development of Telecommunications Services in the Mainland by Hong Kong and Macao Service Providers 《关于港澳服务提供者在内地开展电信业务有关问题的通告》issued by MIIT, has already liberalized the nationwide shareholding restrictions in Hong Kong and Macao capital (subject to meeting the main conditions). And in the Approval of the State Council on the Consent to Temporarily Adjust the Implementation of Provisions of the Relevant Administrative Laws and Regulations of the Departments Approved by the State Council in Beijing 《关于港澳服务提供者在内地开展电信业务有关问题的通告》MIIT has liberalized the restrictions on the shareholding ratio of foreign investors in specific areas of Beijing. Thought here are regulations like those above, the practice is still insufficient. For example, British Telecom's joint venture Anglo-Telecom Information Consulting (Shanghai) LLC had received a nationwide ISP business license in 2018.

The Notice No.107 will further increase the independence of foreign telecoms companies in conducting business in China. However, this new policy still has certain restrictions on the ISP business within the scope of the pilot, that is, it can only use the basic lines of the three major telecom operators to provide Internet access services for customers in the pilot area, and it is not allowed to carry out access services, such as virtual private networks, without permission.

3. EDI Business

As early as 2016, MIIT issued the Notice on Liberalization of Foreign Equity Ratio Restrictions in Online Data Processing and Transaction Processing Businesses (Operating Classes of E-Commerce) 《关于放开在线数据处理与交易处理业务（经营类电子商务）外资股比限制的通告》, which liberalized the foreign equity ratio restrictions on subcategory of operating e-commerce platform services. Since then, numerous wholly foreign-owned e-commerce, automotive and retail enterprises have applied for EDI licenses via this channel.

The Notice No.107 further expands the opening categories in EDI, including all types of business under B21 EDI service. And for the first time, the Notice No.107 fully liberalizes EDI and network/electronic equipment data processing service, which may greatly benefit to foreign-funded IoT and Big Data processing companies.

4. ICP Business

ICP service has been the largest and most common service in the category of VATS. Prior to this, the Official Reply of the State Council on Consent to the Temporary Adjustments to the Implementation of Relevant Administrative Regulations and Departmental Rules Approved by the State Council in Beijing Municipality《国务院关于同意在北京市暂时调整实施有关行政法规和经国务院批准的部门规章规定的批复》, Opinions on Further Opening Up of Value-added Telecommunication Businesses in the China (Shanghai) Pilot Free Trade Zone《关于中国（上海）自由贸易试验区进一步对外开放增值电信业务的意见》, and the Special Administrative Measures for Access to Foreign Investment in the Hainan Free Trade Harbor (Negative List) (2020 Edition)《海南自由贸易港外商投资准入特别管理措施（负面清单）（2020年版）》 have regulated that the foreign equity ratio restriction on the APP shop business under the ICP service was liberalized in the three regions above. But in practice, the advancement was slow. Only Siemens Digital Technology (Shenzhen) Co. registered in Qianhai, Shenzhen, was granted an ICP license (APP shop) with 100% foreign investment in 2023. In addition, the once liberalized ICP for online music has not seen any practical results.

According to the Notice No.107, the catalogue of ICP services have been expanded. In other words, it fully liberalizes the subcategory of information protection and processing services; finitely liberalizes services on information distribution platforms and delivery (mainly APP shop services). But it no further liberalizes services on public communities, instant messaging, search and querying, news publishing, live broadcasting，short videos, online games and other services related to the security of information content (including the hotspot AIGC). For the APP shop services, whether the comprehensive APP shop also related to Internet publishing services and network cultural services still has some legal understanding and application bias in the practice.