China eases requirements for foreign investment in telecommunications enterprises
On 29 March 2022, China published the Decision of the State Council to Amend and Repeal Certain Administrative Regulations to amend several existing regulations (“Decision”). Among other things, the Provisions on the Administration of Foreign-invested Telecommunications Enterprises (“Provisions”), which set out the requirements and procedures for establishing a foreign-invested telecommunications enterprise (“FITE”) in China, have been simplified to facilitate foreign investment in the telecommunications (“telecom”) sector in China.
The amendments to the Provisions take effect on 1 May 2022.
This article provides an overview of the key changes to the Provisions.
Removal of requirement of good performance and operation experience
The previous versions of the Provisions required the major foreign investor of an FITE to have good performance and operation experience in the telecom business that the FITE will be engaged in, i.e. basic telecom business or value-added telecom business. This requirement will be removed. The “major foreign investor of an FITE” as mentioned above refers to the investor that makes the largest contribution among all the foreign investors and holds not less than 30% of the total investment made by all the foreign investors.
The major foreign investor of an FITE which plans to be engaged in basic telecom business continues to be required to fulfil the following conditions:
- The foreign investor must be an enterprise with the status of legal person;
- The foreign investor has obtained a licence for engaging in basic telecom business in the country or region where it is registered; and
- The foreign investor has sufficient capital and staff for its business operations.
The removal of the requirement of good performance and operation experience is the most notable change to the Provisions. The removal lowers the thresholds for foreign-invested enterprises to apply for a telecom business licence and enhances the certainty of obtaining such a licence.
Alignment with Foreign Investment Law of China and other regulations
Significant changes will be made to the Provisions to ensure consistency with the Foreign Investment Law of China (“Foreign Investment Law’), which is the primary piece of legislation on foreign investment in China, and other regulations.
Since the coming into force of the Foreign Investment Law on 1 January 2020, China has abolished the case-by-case approval system for foreign investment, and the Ministry of Commerce of China (“MOFCOM”) no longer issues the Approval Certificate of Establishing Foreign-invested Enterprise. Therefore, MOFCOM’s approval is generally not required for establishing an FITE in China. Accordingly, the Provisions will be amended to remove the relevant requirements and procedures.
There is no change to the general ownership restrictions of an FITE, which are as follows:
- The ultimate proportion of contribution from the foreign investors in an FITE which is engaged in basic telecom business (except radio paging business) must not be more than 49%; and
- The ultimate proportion of contribution from the foreign investors in an FITE which is engaged in value-added telecom business (including radio paging business in the basic telecom business) must not be more than 50%.
However, the Provisions will be amended to provide for an exception to both ownership restrictions above with the addition of the words “except as otherwise provided by the State”. Currently, China has issued a few official documents which provide exceptions to the restrictions, for example:
- The Ministry of Industry and Information Technology of China (“MIIT”) issued a notice on removing the restrictions on foreign ownership in online data processing and transaction processing (operating e-commerce) business nationwide in 2015. According to the notice, foreign ownership in telecom enterprises engaged in the aforesaid business can reach 100%; and
- The National Development and Reform Commission of China (NDRC) and MOFCOM jointly issued the 2019 version of the Negative List applicable to foreign investment nationwide in 2019, which allowed foreign investors to establish wholly-owned subsidiaries to engage in e-commerce, domestic conferencing, store-and-forward and call centre business. This exception has been adopted in the latest 2021 version of the Negative List as well.
Following from the above, foreign investors may set up wholly-owned subsidiaries for conducting certain telecom business without joint investment with a Chinese partner. Accordingly, the Provisions will also be amended to make changes to the definition of “foreign-invested enterprises” to remove references to joint ventures and joint investment.
Simplify application procedures and shorten processing time for obtaining licence for telecom business
The amendments to the Provisions simplify the procedures for obtaining a licence for telecom business from MIIT, which is the competent authority on telecom business licensing.
The Provisions will no longer require investors to apply for and obtain the Examination Decision of Foreign Investment in the Telecommunications (“Examination Decision”) from MIIT, which is currently a condition precedent to apply for the licence for telecom business. Apart from the general business licence issued by the State Administration for Market Regulation of China for all legally registered entities in China, the licence for telecom business is generally the only other approval to be obtained by an FITE before conducting business.
With the removal of the requirement for the Examination Decision, the processing time for granting a licence for telecom business will also be shortened as it will no longer be necessary to allocate additional time to obtain the Examination Decision (which could take up to 180 days for basic telecom business, and 90 days for value-added telecom business). From 1 May 2022, an FITE engaging in basic telecom business can expect to obtain the licence within 180 days after the application has been accepted, and for an FITE engaging in value-added telecom business, within 60 days after the application has been accepted.
