A prelude to more liberalisation? Latest round of relaxation in the telecom sector in China

The telecommunications market in China has always been a challenging one for foreign service providers and operators.  Not only do they face restrictions in the amount of equity interest they can hold in a local China service provider, the current policy also provides that certain telecom services can only be provided by domestic Chinese companies.  For certain basic telecom services/carrier services, such as mobile services, they are strictly reserved for state owned enterprises.

That said, with China’s renewed effort to maintain and attract foreign investment, a new round of liberalisation measures was announced in April 2024 through the issuance by the Ministry of Industry and Information Technology (MIIT) of the “Notice relating to the launch of the expansion of the liberalisation of value-added telecom business on a trial basis (Gongxinbutongxinhan [2014] No. 107)”.  This was then followed by the four relevant local telecom authorities releasing the corresponding implementation details on how a trial approval can be obtained.  

Where in China do the liberalisation measures apply?

The liberalisation measures currently are only available in the following areas:

• Beijing
• Shanghai Free Trade Zones, including Pudong and Lingang
• Shenzhen
• Hainan Free Trade Port

This however does not mean that the liberalisation measures would not be rolled out eventually to the rest of China. There are precedents in the telecom sector for which the MIIT has adopted the limited-trial approach followed by a nationwide adoption.  Service providers which manage to obtain a trial approval and are able to demonstrate the quality of their service to the satisfaction of MIIT will usually be granted a formal licence subsequently.

Which telecom and internet services are liberalised?

The following five telecom and internet services are no longer subject to any investment restriction (i.e. 50% cap). In other words, it is now possible for a foreign company to set up a wholly owned subsidiary and apply for a trial approval to provide these services.  They include:

• Internet data centre service (IDC) B11 - This includes providing resources on a PaaS basis. Previously, IDC was only opened up to Hong Kong and Macau investors. These investors are still subject to the 50% cap on the percentage of equity interest permitted to be held in the licensee.
• Content delivery network (CDN) B12
• Online data processing and transaction processing B21 - Foreign investors can already set up wholly owned subsidiaries and apply for such a licence to operate e-commerce business. This has proven to be a very popular licence since the restriction is lifted.  The latest liberalisation measures lift this restriction and a service provider can now provide non-e-commerce online processing service, such as ASP services (e.g. online payroll services). 
• Internet access service (ISP) B14 - Of the five telecom services, perhaps this is the one which is still subject to fairly stringent restrictions. An approved service provider is only permitted to provide ISP services to users which are within the same liberalised area (i.e. an approved Beijing service provider can only provide the ISP services to users in Beijing), although the restriction that the ISP service could only be for end-user of internet has been lifted.  As a value-added telecom business, the approved ISP service provider cannot build out its own network and must obtain the underlying connectivity to the internet exchange through appropriate arrangements with licensed carriers in China.   
• Information service (ICP) B25 - The liberalisation measures are only applicable to two of the ICP services: (i) information publishing platform and delivery service (i.e. app store) and (ii) information protection and processing service (i.e. online security and virus detection services).

What are the other main requirements?

In order to benefit from the liberalisation measures, the relevant company in China must be established in one of the four areas above.  The relevant equipment for the service must also be established in the same area.  Except for ISP, an approved service provider can provide its service to customers nationwide. 

Are there any successful applications?

On 28 February 2025, the MIIT announced that a total of 11 foreign companies are granted trial approvals, including Siemens, Deutsche Telekom, PCCW and cloud service providers. The distribution of the successful applications for each liberalised area is as follows:

• Beijing: 4
• Shanghai: 4
• Shenzhen: 3
• Hainan: 2

What will happen next?

It is likely that more foreign service providers will be given the trial approvals as publicly available information indicates that a few high-profile companies, including Tesla and Equinix, have shown interest in obtaining such approvals for their businesses.  

It would also be interesting to see if China is ready to allow foreign service providers to venture into the basic telecom sector (e.g. mobile and satellite) for which China will most definitely benefit from foreign service providers bringing in innovation in products and services in this sub-sector.