Procedures for Administration of Pilot Value-added Telecom Business with Foreign investment in the China (Shanghai) Pilot Free Trade Zone

Article 1These Procedures are formulated in accordance with relevant provisions of the Regulations of the People's Republic of China on Telecommunications, the Provisions on the Administration of Foreign-funded Telecommunication Enterprises, the Decision of the State Council on Temporary Adjustments to the Administrative Approval Items or Special Administrative Measures on Access Prescribed in Relevant Administrative Regulations or State Council's Documents in China (Shanghai) Pilot Free Trade Zone, and the Suggestions of Ministry of Industry and Information Technology and Shanghai Municipal People's Government on Further Opening up Value-added Telecommunication Business to Foreign Investors in China (Shanghai) Pilot Free Trade Zone for the purpose of adapting to the need of value-added telecommunications business with foreign investment in the China (Shanghai) Pilot Free Trade Zone (hereinafter referred to as the “Pilot Zone”).Article 2The value-added telecom business that can be operated by foreign-funded enterprises in the Pilot Zone and the proportion of funds contributed by the foreign investors shall be determined by the Ministry of Industry and Information Technology in accordance with relevant regulations.Article 3A foreign-funded enterprise in the Pilot Zone that applies for value-added telecom business shall comply with the following requirements: 1. The operator is a company established in the Pilot Zone according to law; 2. Having appropriate funds and professionals to carry out business activities; 3. Having the reputation or capability to provide long-term services for users; 4. The minimum amount of registered capital is RMB 1 million; 5. Having the necessary premises, facilities, technical solutions and network and information security systems and measures, and the service facilities shall be located in the Pilot Zone; 6. The company as well as its major investors and major managerial executives have not violated the telecom supervision and management system within three years; and 7. Other requirements prescribed by the State.Article 4A foreign-invested enterprise in the Pilot Zone that applies for value-added telecom business shall apply to the Shanghai Communications Administration and submit the following documents thereto: 1. A written application for value-added telecom business signed by the legal representative of the company, including the category of telecom business under the application, business coverage, company name, company correspondence address, zip code, contact person, telephone, e-mail address, etc.; 2. Relevant materials on the major foreign investors of the company, including the company registration certificate, brief introduction, recent financial reports audited by an accounting firm, certificate of credit status; and relevant materials on other investors of the company, including the company registration certificate or business license and brief introduction; 3. Copies and photocopies of the company's Certificate of Approval for Enterprises with Foreign Investment or Certificate of Filing of Enterprises with Foreign Investment /with Investment from Hong Kong, Macao, and Taiwan in the China (Shanghai) Free Trade Zone and the Business License for an Enterprise Legal Person; 4. Company profile, including basic information of the company, staff to be engaged in value-added telecom business, premises and facilities; 5. The articles of association and matters about the equity structure of the company; 6. The business development and implementation plans and technical solutions of the telecom business to be applied for; 7. Measures to provide users with long-term service, quality assurance, and users' personal information protection; 8. Network and information security systems and measures; 9. Relevant materials to prove the credibility of the company; and 10. Letter of commitment signed by the legal representative of the company on conducting telecom business in accordance with the law.Article 5Shanghai Communications Administration shall review the application materials, issue a notice of acceptance to the applicant with the complete application materials in compliance with the legal form, and shall inform at a time the applicant with incomplete application materials or out of compliance with the legal, either on spot or within five working days of all the contents that need to be complemented.Article 6Shanghai Communications Administration shall complete the review within 60 days from the date of acceptance and make a decision of approval or disapproval. For the applications that are approved, the administration shall issue an Official Reply of Approval for the Pilot Value-added Telecommunications Business with Foreign Investment in the China (Shanghai) Pilot Free Trade Zone (temporarily valid for 3 years). For the applications that are not approved, the Administration shall notify the applicant concerned in writing and explain the reasons.Article 7The Shanghai Communications Administration shall, after issuing an official reply of approval for pilot business to the applicant concerned, report to the Ministry of Industry and Information Technology for filing within 10 days.Article 8The foreign-funded telecom enterprises in the Pilot Zone shall conduct operation of value-added telecom business in accordance with the law, protect the legitimate interests of users, report business developments on time, exercise no unfair competition of any kind, properly protect users' information and maintain network and information security.Article 9Shanghai Communications Administration shall implement annual inspection system for foreign-funded telecom companies in the Pilot Zone. The foreign-funded telecom enterprises shall submit the following materials for annual inspection to the Shanghai Communications Administration in the first quarter of the next report year: 1.The operation of telecom business within the year; business developments, changes of personnel and set-up; quality of service and protection of users’ personal information; implementation of the requirements of network and information security management; implementation of relevant regulations of the State and the telecommunications regulatory administrations; 2. Photocopies of company's business license of enterprise legal person; and 3. Other submissions required by Shanghai Communications Administration.Article 10Shanghai Communications Administration shall, when carrying out annual inspection of foreign-funded telecom enterprises, conduct a comprehensive examination of the submissions of the enterprises, and examine such aspects as their business subjects, business practices, telecom charges, service quality and users' personal information protection, implementation of requirements for network and information safety management, and implementation of relevant regulations of the State and the telecommunications regulatory administrations. Participation in annual inspection on schedule and with all items complying with the requirements is deemed the annual inspection passed. For failure to participate in annual inspection as required or annual inspection items failing to comply with the requirements, the Shanghai Communications Administration shall make an order for correction and appropriately give administrative punishment in accordance with the law; correction made on time is deemed the annual inspection passes after correction; refusal to correct is deemed failure to pass the annual inspection. The annual inspection results and the punishment shall be recorded in the Record of Annual Inspection and Violations, attached to Official Rely for the Pilot Business, and shall be released to the public and reported to the administration for industry and commerce.Article 11If a foreign-funded telecom enterprise in the Pilot Zone has a situation provided for in Articles 18 to 20 of the Provisions on the Administration of Foreign-funded Telecommunications Enterprises, the Shanghai Communications Administration shall impose punishment in accordance with the law.Article 12The Ministry of Industry and Information Technology is responsible for organizing the evaluation on the work of pilot value-added telecom business with foreign investment in the Pilot Zone. Shanghai Communications Administration shall issue an evaluation report on value-added telecommunications business with foreign investment on a quarterly basis based on the annual inspection as well as daily supervision, and submit the report to the Ministry of Industry and Information Technology.Article 13These Procedures come into effect on the date of promulgation, and relevant contents are to be adjusted at appropriate time in accordance with relevant decisions of the State Council.

China’s retail business shows sign of structural recovery

China’s retail business has shown a sign of structural recovery as its large retailers began to pick up growth since the second half of 2016.Sales of 2,300 retailing enterprises in China grew by 4.1% year on year in the first 6 months of 2017, according to statistics from the country’s Ministry of Commerce.Data showed that China had 18.12 million retailers by the end of 2016, up 5.2% year on year, the ministry said in a report issued in July, adding that total retail sales of consumer goods in 2016 hit 29.7 trillion yuan ($4.5 trillion), up 10.4 percent on a yearly basis.Besides, the retail sector has seen decreased debt ratio and increased profits, with sales rising especially in convenient stores, shopping malls, and supermarkets.Large Chinese retailing enterprises experienced sluggish growth since 2011, and even negative growth in recent two years, resulting in large-scale shutdowns of physical stores, especially megastores and hypermarkets in many regions.Despite of the recession faced by the physical retail, e-commerce has been developing rapidly in China. In 2016, the country’s e-commerce transactions accounted for 35% of its GDP.“The growth of e-commerce is not the major reason for closing of physical stores,” said Vice Minister of Commerce Wang Bingnan.He pledged previously that China will boost the entity economy by encouraging the application of Internet and other new technologies in physical stores and curtailing unreasonable fees to reduce enterprises’ burdens.In order to curb the recession of physical stores, the Chinese government is also encouraging the retail business to seek for integrated development and nurture a new type of market entity that merges both online and offline services.

Changes in e-commerce set to revamp entire retail industry

The total trade turnover of China’s e-commerce market in 2016 amounted to 26.1 trillion yuan ($3.81 trillion), an increase of 19.8 percent year-on-year, according to the 2016 China E-commerce Report released on May 29 at the 2017 China Beijing International Fair for Trade in Services.Compared with the surge in e-commerce over the past five years that has averaged 34 percent annually, 2016 showed an obvious fall, indicating China’s e-commerce entering a period of steady development, said Nie Linhai, inspector at the Department of Electronic Commerce and Information of the Ministry of Commerce.According to the report, the users of online shopping applications and platforms reached 467 million, accounting for 63.8 percent of all Chinese netizens.“But the growth rate of Chinese netizens is slowing down. New impetus in e-commerce consumption won’t emerge unless the participants in e-commerce can break the bottleneck of the sluggish browsing volume,” Nie said.E-commerce in 2016 indeed indicated some new phenomena, however, according to Nie.First, it facilitates supply-side structural reform. By precise calculation through real-time monitoring and big data analysis, information about demand can guide the volume of supply, for more efficient, personalized service.As the digital economy shows rapid growth amid implementation of the Internet Plus strategy all over the country, e-commerce has become a significant part of it.Second, the traditional retail industry is transforming. From the circulation channels and supply chains, to data collection and trading, the online and offline aspects are gradually opening up for each other, pointing to a convergence of their further development. In 2016, with social network e-commerce featuring web celebrities, WeChat business reached a new level.Online retailers and social networking platforms have been integrated with pictures, video and live broadcasting.

China to open a wider door to foreign investment

China's National Development and Reform Commission (NDRC) and Ministry of Commerce (MOFCOM) published a draft of a revised catalogue for the Guidance of Foreign Investment Industries in early December for public comments. It is expected that the new catalogue will be promulgated in early 2017, which will make the Chinese market more accessible to foreign investment.  In the draft of this new catalogue revision the so-called negative list, which lists industries prohibiting or restricting market access by foreign investment, includes only 62 entries, down from 93 ones in the previous version. Restrictions on market access by foreign investment to a large number of sectors are deregulated. Among them are unconventional oil resources, automobile electronic devices, key parts and components for new energy vehicles, including energy power batteries, equipment for railway transportation, exploring and mining of precious metals, exploring and cradling of lithium, processing of edible oil, deep-processing of corn, manufacturing of biological liquid fuel, motorcycle manufacturing, highway coach services, ocean shipping tally and credit investigation and rating. The sectors liberalized spread across mining, manufacturing and service industries, involving a significant volume of jobs and investments.  Commentators might be a little surprised by the timing of such a unilateral measure of investment liberalization announced by the Chinese government. Due to the imminent change of the administration in the United States, it seems that the talk on the China-US Bilateral Investment Treaty (BIT) will be slowed down and delayed. U.S. President-elect Donald Trump has raised his rhetoric against globalization repeatedly. The Doha round negotiation of the WTO has reached a stalemate, to mention the least. Protectionism has reared its ugly head all over the world. However, China has walked its talk and shown its confidence on globalization by major investment liberalization measures in this cold winter.  The new catalogue is actually only one step of China's continues reform on its foreign direct investment (FDI) regulation regime. In July 2013, China announced that it had agreed to negotiate with the U.S. on China-US BIT on the basis of Pre-Establishment National Treatment (PENT) with negative listing, which means China would grant the right of market access to the foreign investment no less than that to domestic investment in principle, while exceptions to PENT would be listed specifically.  In September 2013, the Shanghai Pilot Free Trade Zone (FTZ) was launched and PENT with negative listing started to be experimented on in Shanghai. The first negative list used in the Shanghai Pilot FTZ was as long as 190 entries. However, it marked a fundamental change in China's foreign direct investment regulation system. Based on the three-year experiment in Shanghai and other FTZs, China has started to grant PENT with negative listing to all foreign investment from October 2016 nationwide. This is an important unilateral proactive investment liberalization measure. More than 95% of cases of foreign invested enterprises do not need to go through the application and approval procedure as in the old regime any more, and only a simple registration procedure is required. For most sectors, foreign investors can just go to set up their firms in China as Chinese investors.  While the China-US BIT talk is still going on, such major investment liberalization measures are not really required by any trade and investment treaties China has signed. China is willing to liberalize its market not only to fulfill its international commitments but also to meet its own demand of economic reform and growth. Based on the data of the first 11 months, the year 2016 is estimated to see a slight 3% increase in FDI flowing into China. China is trying to attract more and better FDI to boost its economic growth and balance its huge outbound FDI. The ultimate target of China's reform is to establish a level playing field for investors from all sectors all over the world.  The year 2016 sees a rising wave of anti-globalization. Facing such challenges as Brexit and anti-globalization rhetoric in the US and other countries, the G20 Hangzhou Summit hosted by China in September reaffirmed G20 leaders' support for the multilateral trading system, and published the G20 Strategy for Global Trade Growth and G20 Guiding Principles for Global Investment Policymaking.  G20 Guiding Principles for Global Investment Policymaking is the first such document endorsed by leaders of major economies. It is a milestone in the development of an international investment system, and might become a forerunner of a rule-binding multilateral system on investment.  After a series of unilateral investment liberalization measures in 2016, it seems that China has been ready to negotiate with other countries on further investment liberalization at the bilateral, plurilateral and multilateral levels.  Cui Fan is professor of International Trade, the University of International Business and Economics and director of research, China Society for WTO Studies, Beijing, China.