How are the policies to be relaxed in the Shanghai Free Trade Zone (FTZ) for the value-added telecommunication services industry?

The telecommunications industry has traditionally been heavily regulated in China. Due to the practical hurdles in obtaining the relevant licenses and foreign ownership restrictions, very few foreign investors have been able to obtain permission to provide value-added telecommunication service in the country.

China will further open up its value-added telecommunication service sector to foreign capital in the Shanghai FTZ. According to the Opinions on Further Opening Up Value-added Telecom Services in the Shanghai FTZ released by China’s Ministry of Industry and Information Technology, overseas investors are now permitted to own more than 50 percent of online application stores and online storage businesses in the Shanghai FTZ. However, foreign ownership of online data and transaction-processing businesses will still be limited to 55 percent. Going beyond its World Trade Organization commitment, China will further open up the following four new business types to foreign capital:

• Calling center services (over 50 percent foreign ownership permitted);
• Internet access services (over 50 percent foreign ownership permitted);
• Multi-side voice and video communication services (over 50 percent foreign ownership permitted); and
• Domestic Internet virtual private network businesses (foreign ownership capped at 50 percent).

All telecom business enterprises that register and base their service facilities in the Shanghai FTZ will be allowed to offer their services (excluding internet access) nationwide. The opening up of this sector (though limited to the Zone) may spur the further development of Business Process Outsourcing (BPO) in the area and also spur a re-examination of a number of Variable Interest Entities (VIE) structures currently used by foreigners to participate in this sector.