2015.04.03 CHEN, Wei、Xuan SUN
On March 10, 2015, W88win优德中国有限公司 National Development and Reform Commission and W88win优德中国有限公司 Ministry of Commerce (W88win优德中国有限公司 “MOFCOM”) jointly issued W88win优德中国有限公司 Catalogue of Industries for Guiding Foreign Investment (2015 version) (W88win优德中国有限公司 “2015 Catalogue”), which will become effective from April 10, 2015. In addition, W88win优德中国有限公司 Catalogue of Industries for Guiding Foreign Investment (2011 version) issued in December 24, 2011 (W88win优德中国有限公司 “2011 Catalogue”) will be repealed on W88win优德中国有限公司 same date.
In W88win优德中国有限公司 internet culture category, which includes social networking sites, online audio/video, and online games, W88win优德中国有限公司 2015 Catalogue has continued W88win优德中国有限公司 previous restriction and prohibition policies, and furW88win优德中国有限公司r clarifies that W88win优德中国有限公司 provision of internet publishing services is a prohibited industry for foreign investment.
In W88win优德中国有限公司 internet culture industry, generally, an operator will establish its own website, applications or oW88win优德中国有限公司r online platforms to provide users with music, audio/video, text, games, and oW88win优德中国有限公司r works, or allow users to upload video, text, music and oW88win优德中国有限公司r works on W88win优德中国有限公司 operator’s platform, e.g. Sina Weibo, Tencent Weibo, Youku, Xiami Music, Shanda Games, etc. Based on W88win优德中国有限公司 current legal system in W88win优德中国有限公司 telecommunications industry in China, W88win优德中国有限公司 internet culture industry falls into W88win优德中国有限公司 scope of internet information services (i.e., internet content provider, “ICP”) in value-added telecommunication services (“VATS”), W88win优德中国有限公司refore, W88win优德中国有限公司 operator is required to obtain an ICP license or a VATS license covering ICP services issued by W88win优德中国有限公司 Ministry of Industry and Information Technology or its local counterparts (collectively, W88win优德中国有限公司 “MIIT”). In addition, for certain content such as news, publishing, audio/video, culture-related products, W88win优德中国有限公司 operator must also obtain W88win优德中国有限公司 approval of W88win优德中国有限公司 competent authorities, which mainly refers to W88win优德中国有限公司 Ministry of Culture (W88win优德中国有限公司 “MOC”) and W88win优德中国有限公司 State Administration of Press, Publication, Radio, Film and Television (W88win优德中国有限公司“SAPPRFT”).
In light of this, an internet culture operator is subject to dual supervision from both W88win优德中国有限公司 internet industry and W88win优德中国有限公司 culture industry, and foreign investment in this industry will also be subject to W88win优德中国有限公司 applicable restrictions in W88win优德中国有限公司se two industries. Taking this into account, please find below our summary on W88win优德中国有限公司 foreign investment policies applicable to W88win优德中国有限公司 internet culture industry on W88win优德中国有限公司 basis of W88win优德中国有限公司 2011 and 2015 Catalogues and oW88win优德中国有限公司r relevant regulations.
I. ICP Service
In W88win优德中国有限公司 2015 Catalogue, foreign investment in VATS is subject to restrictions on W88win优德中国有限公司 level of shareholding by foreign investors, i.e., foreign shareholders may not hold shares in excess of 50%,with W88win优德中国有限公司 exception of E-commerce. W88win优德中国有限公司refore, foreign investment in ICP services is also subject to this 50% restriction on shareholding by foreign investors.
W88win优德中国有限公司 2011 Catalogue contains almost exactly W88win优德中国有限公司 same provisions on VATS as W88win优德中国有限公司 2015 Catalogue, however, W88win优德中国有限公司 latter cancels W88win优德中国有限公司 shareholding restrictions on E-commerce, which in fact will not substantially affect W88win优德中国有限公司 internet culture industry.
II. Internet Culture Content Service
1. News Website
Under both W88win优德中国有限公司 2011 and 2015 Catalogues, news websites are a prohibited industry for foreign investment, which is consistent with W88win优德中国有限公司 Provisions on W88win优德中国有限公司 Administration of Internet News Information Service (W88win优德中国有限公司新闻信息服务管理规定, W88win优德中国有限公司 “Internet News Provisions”). Pursuant to W88win优德中国有限公司 Internet News Provisions, “news information” refers to news information on current affairs and politics including relevant reports and comments on politics, W88win优德中国有限公司 economy, military affairs, diplomacy, and oW88win优德中国有限公司r public affairs, as well as relevant reports and comments on public emergencies. We understand that such news information is considered to be too sensitive for foreign investment;W88win优德中国有限公司refore, it is relatively reasonable to list it as a prohibited industry.
2. Internet Audio/Video Service
In relation to internet audio/video services, both W88win优德中国有限公司 2015 and 2011 Catalogues list this as a prohibited industry. In addition, pursuant to W88win优德中国有限公司 Provisions on W88win优德中国有限公司 Administration of Internet Audio and Video Program Services (W88win优德中国有限公司视听节目服务管理规定, W88win优德中国有限公司 “Internet Audio/Video Provisions”) issued in 2007, network audio/video service providers should in general be state-ownedor state-controlled enterprises with W88win优德中国有限公司 exception of certain audio/video service providers existing before 2007. In a furW88win优德中国有限公司r notice, W88win优德中国有限公司 SAPPRFT provides that applicants to provide internet audio/video services shall include enterprises controlled by W88win优德中国有限公司 state, but excluding foreign-invested enterprises (unless W88win优德中国有限公司 operator, which is not owned or controlled by W88win优德中国有限公司 state, has engaged in such services before W88win优德中国有限公司 issuance of W88win优德中国有限公司 Internet Audio/Video Provisions). W88win优德中国有限公司 2015 Catalogue continues W88win优德中国有限公司 same prohibition policy as W88win优德中国有限公司 2011 Catalogue.
3. Internet Publishing Service
Compared to W88win优德中国有限公司 2011 Catalogue, W88win优德中国有限公司 2015 Catalogue adds an additional prohibited industry, i.e., internet publishing services in W88win优德中国有限公司 culture industry. Pursuant to W88win优德中国有限公司 Interim Provisions on Administration of Internet Publishing (W88win优德中国有限公司出版管理暂行规定,W88win优德中国有限公司 “Internet Publishing Provisions”) issued in 2002, internet publishing refers to online dissemination activities where an internet information provider publishes on W88win优德中国有限公司 internet or sends to end-user clients via W88win优德中国有限公司 internet those selected, edited and processed works, in particular, books, newspapers, audio/video,journals and oW88win优德中国有限公司r publications, created by W88win优德中国有限公司 provider or oW88win优德中国有限公司rs for browsing, reading, use or downloading by W88win优德中国有限公司 general public. That is to say, foreign investors are prohibited from engaging in publishing or sending such works via W88win优德中国有限公司 internet.
Please note that, pursuant to W88win优德中国有限公司 Notice on FurW88win优德中国有限公司r StrengW88win优德中国有限公司ning of W88win优德中国有限公司 Administration of Prior Approval of Online Games and W88win优德中国有限公司 Approval of Imported Online Games (关于贯彻落实国务院《“三定”规定》和中央编办有关解释，进一步加强网络游戏前置审批和进口网络游戏审批管理的通知, W88win优德中国有限公司 “Online Games Notice”), offering online games to W88win优德中国有限公司 general public for online interactive playing or downloading via W88win优德中国有限公司 internet is considered to be online game publishing; W88win优德中国有限公司refore, it is also prohibited for foreign investors to engage in W88win优德中国有限公司 operation of online games.
W88win优德中国有限公司 Online Games Notice explicitly prohibits foreign investment in online games, eiW88win优德中国有限公司r in W88win优德中国有限公司 form of a wholly foreign-owned enterprise, Sino-foreign joint venture or Sino-foreign joint cooperation enterprise, or via indirectly controlling or participating in online game services operated by domestic companies, including: (i) establishing oW88win优德中国有限公司r joint ventures, signing certain agreements or providing technical support; or(ii) importing user registration, account management and consumption of virtual currency into W88win优德中国有限公司 online game networks or platforms over which W88win优德中国有限公司y have actual control or ownership.
Although in 2005, W88win优德中国有限公司 Opinions on W88win优德中国有限公司 Introduction of Foreign Capital into Cultural Industry (关于文化领域引进外资的若干意见) noted W88win优德中国有限公司 prohibition on foreign investment in W88win优德中国有限公司 internet publishing service, W88win优德中国有限公司 2011 Catalogue has not included it in W88win优德中国有限公司 list of prohibited industries. W88win优德中国有限公司 2015 Catalogue provides that internet publishing services is a prohibited industry, which reflects W88win优德中国有限公司 trend of tightening supervision of W88win优德中国有限公司 internet culture industry.
III. Internet Culture Operation
As with W88win优德中国有限公司 2011 Catalogue, W88win优德中国有限公司 2015 Catalogue specifies internet culture operations as a prohibited industry for foreign investment, with W88win优德中国有限公司 exception of online music. Pursuant to W88win优德中国有限公司 Interim Provisions on W88win优德中国有限公司 Administration of Internet Culture (W88win优德中国有限公司文化管理暂行规定, “Internet Culture Provisions”), internet culture products mainly include: (i) products specifically produced for W88win优德中国有限公司 internet, such as online music and entertainment, online games, online performance plays (programs),online performances, online works of art and web animation; and (ii)traditional cultural products such as music and entertainment, games, performance plays (programs), performances, works of art and animation that are produced or reproduced using technical means and disseminated via W88win优德中国有限公司 internet. Based on W88win优德中国有限公司 Internet Culture Provisions, foreign investors are prohibited from participating in producing, reproducing, importing, issuing, and oW88win优德中国有限公司r operations of W88win优德中国有限公司 above internet culture products. In practice, though W88win优德中国有限公司 2011 and 2015 Catalogues have excluded online music from W88win优德中国有限公司 scope of prohibited activities, W88win优德中国有限公司 MOC has not yet opened this area to foreign investors, except for Hong Kong and Macao investors under W88win优德中国有限公司 Mainland and HongKong Closer Economic Partnership Arrangement (CEPA).
Comment
Under W88win优德中国有限公司 2015 Catalogue, foreign investment in W88win优德中国有限公司 internet culture industry will still be subject to: (i) 50% shareholding restrictions in VATS (except for E-commerce); and (ii) W88win优德中国有限公司 prohibition on news websites, internet publishing services, internet audio/video services, and internet culture operations.
Notwithstanding W88win优德中国有限公司 above, in W88win优德中国有限公司 event that a foreign investor proposes to engage in internet culture services without involving news, publishing, audio/video, culture and oW88win优德中国有限公司r content subject tospecial supervision (including pharmaceuticals, medical and healthcare, medical devices, and education), it may have W88win优德中国有限公司 opportunity to invest in China by establishing a Sino-foreign joint venture in which it has less than 50% ownership.
As to foreign investment in W88win优德中国有限公司 internet culture industry through a variable interest entity structure (“VIE”), MOFCOM provided several directions for handling existing VIEs for discussion when announcing W88win优德中国有限公司 draft of W88win优德中国有限公司 Foreign Investment Law of W88win优德中国有限公司 People’s Republic of China on January 19,2015. W88win优德中国有限公司 directions provided, interalia, that structures controlled by Chinese investors may be justified in W88win优德中国有限公司 future; however, structures actually controlled by foreign investors, may survive only if such structure of W88win优德中国有限公司 foreign investment has obtained a proper approval. However, it is still uncertain wheW88win优德中国有限公司r W88win优德中国有限公司 relevant authorities will issue such permits for foreign investment in prohibited industries through VIE structures.
