China eases foreign ownership limits for “value-added telecoms services”


Foreign owned data centres, content delivery networks, and internet service providers, will be allowed to set up shop in certain pilot areas, including parts of Beijing, Shanghai, Hainan, and Shenzhen

This week, China’s Ministry of Industry and Information Technology (MIIT) has announced a new pilot project that will see foreign ownership restrictions lifted on a number of value-added telecoms services (VATS).

The project will run in four specially designated regions, covering parts of Beijing, Shanghai, Hainan, and Shenzhen, and will cover various subsectors of the telecoms industry, including data centres, content delivery networks, and internet service providers, among others.

Until now, Chinese government policy has been to limit foreign ownership of these key industries to 50%.

The government says that the pilot project aims to align these industries with international trade and economic development rules, helping to making these sectors more diverse and drive innovative.

If successful, the government says the project could be further expanded to include additional subsectors of the telecoms industry.

“Advancing new industrialization requires deepening reforms and expanding openness,” said Jin Zhuanglong, the head of the MIIT, in a related statement last month.

In fact, the telecoms sector is not the only sector being somewhat opened up by the Chinese government. Market access restrictions on foreign investment in manufacturing are set to be removed, while limitations on the same in the healthcare and finance sectors will also be reduced.

At a time when the international community is growing increasingly insular, this loosening of red tape by the Chinese government comes as a welcome change. With the soaring interest in AI, the news could be particularly exciting for cloud players looking to cement their position in China’s increasingly digital economy.

But we must be careful not to take this shift towards openness in the Chinese telecoms industry too far. Foreign companies have been theoretically allowed to invest in Chinese VATS up to 50% since 2000, but doing so requires a licence from the government. To date, only a very small proportion of such applications have been granted, thereby leaving the Chinese telecoms sector dominated by domestic investors for the past quarter century.

While these newly relaxed restrictions this week will no doubt make investment in VATS even more enticing for foreign investors, it remains to be seen whether the Chinese government will become similarly more liberal when allocating operating licences.

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