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1 Feb 2016
As the Chinese Internet industry has rapidly developed during recent years, the Internet has played an increasingly important role in the lives of ordinary Chinese citizens. Advancement of the “Internet+” strategy boosted the Internet industry’s importance to the national economy to unprecedented heights. The Classification Catalogue of Telecommunications Services has always been a key piece of legislation for the regulation of the Internet industry. The current catalogue ("2003 Catalogue"), which was promulgated in 2003 by the Ministry of Industry and Information Technology ("MIIT"), is now inadequate to satisfy the regulatory needs of Internet businesses, which are swiftly changing. Therefore, revision and updating of the regulations is greatly needed.
The 2015 Classification Catalogue of Telecommunications Services ("2015 Catalogue") was officially promulgated by the MIIT on 25 December 2015 and will be implemented as of 1 March 2016. As the first in a series of articles interpreting the 2015 Catalogue, this article will specifically focus on information service businesses ("Information Service Businesses").
I. Business Classification
It is common knowledge that Information Service Businesses, including Internet information services, are now the most active area of value-added telecommunications businesses and also a focus of current market regulation. The 2003 Catalogue classified Information Services Businesses into “fixed network businesses”, “mobile network businesses” and “Internet businesses” based on the type of basic communication network that was adopted.
As Internet (especially mobile Internet) businesses have developed over the years, the classification of subcategories based on network technology no longer conforms to actual regulatory needs. In response to this issue, the 2015 Catalogue classifies Information Service Businesses into the following five business forms based on the organization, transmission and other modes of information service:
The changes to business classification will directly lead to a change in regulatory processes in the future. Affected enterprises will be subject to regulations and apply for relevant licenses according to their mode of business, rather than their transmission networks. For example, the same mode of mobile network businesses and Internet businesses (e.g., information publishing platform services provided through mobile networks or the Internet) will be subject to uniform regulation, and shall be required to apply for a subcategory license in “information publishing platform services” in the value-added telecommunication business. No longer will the circumstance exist where the same mode of information services provided through different networks is subject to different regulations.
III. Influence on Foreign Investment
According to the current foreign investment policies of the telecommunication industry, foreign investors may invest in value-added telecommunication businesses, but they are limited to holding no more than 50% of the total shares. However, due to preferential policies for foreign investment, the shareholding limit for certain telecommunication businesses may be increased up to 100% in several free trade zones throughout the country. With regard to Information Service Businesses, currently, only app store businesses can enjoy this preferential policy. Upon the 2015 Catalogue becoming effective, foreign investors will likely be required to obtain a value-added telecommunication business license that covers “information publishing platforms and delivery services” in order to invest in an app store business.
IV. Transitional Period Arrangements
According to MIIT’s notice, from 1 March 2016, the authorities will begin to conduct examinations and approvals of telecommunications business licenses according to the 2015 Catalogue. Telecommunication business licenses issued before this date will continue to be effective within the approved scope and term specified in the original license. If the enterprise wishes to renew its license within the term of the original license, MIIT will issue a new telecommunication business license upon application. Per our understanding, MIIT will examine and approve such renewal application on the basis of the 2015 Catalogue. Given the current transitional period prior to formal implementation of the 2015 Catalogue, MIIT and the local telecommunication bureaus have yet to detail the exact procedure for license application and renewal.
In general, the adjustments made to classification of Information Service Businesses under the 2015 Catalogue will have a significant effect on Internet enterprises’ business license applications and future compliance. During the transitional period, it is recommended that relevant enterprises conduct compliance reviews with reference to the 2015 Catalogue. With regard to technical issues, such as the transition between the 2003 Catalogue and the 2015 Catalogue and how businesses should be classified according to the new categories of telecommunication businesses, we recommend that affected entities seek advice from professionals in order to manage their compliance risks.