China’s Ministry of Industry and Information Technology (MIIT) recently launched a public consultation on a draft opinion titled “Innovating the Environment of the Information and Communications Industry to Optimise the Business Environment”. This draft opinion proposes 16 measures designed to optimise the overall business environment of the country’s telecommunications industry.
The measures are categorised into five main objectives: 1) Facilitate efficient access to the telecommunication market; 2) Foster a fair telecommunication market to encourage competition; 3) Establish a transparent, standardised regulatory framework; 4) Cultivate a high-quality environment for telecommunication services; 5) Promote coordination between regulatory authorities and telecommunication enterprises.
Rather than making highly detailed regulatory modifications, the 16 measures under these five major categories provide general guidelines to enhance the long-term telecommunications business landscape. They also reflect the future directions of how the authorities plan to improvise the regulatory procedures on telecommunication services.
The key measures
Among the 16 measures, two need to be highlighted because of their potential industry impact, including foreign investors seeking to enter the Chinese telecommunications market.
Review the existing “Telecommunication Business Classification Category”
According to section 2(1) in the draft opinion, the authority will work on “revising the Telecommunication Business Classification Category, launching guidelines for new telecommunication business, and keeping dynamic updates to provide policy guarantees for operator’s compliant development”.
The classification category (in the annex of the Regulation on Telecommunications) was published in 2015 and underwent minor revisions in 2019. It divides telecommunication businesses into two main segments: Basic Telecommunication Services (BTS) and Value-added Telecommunication Services (VATS), which form the base of the licensing regime. All operators are required to obtain either a BTS licence or a VATS licence to provide telecommunication services within the country.
It is important to note that only state-owned enterprises can obtain a BTS licence to operate the services, which cover mobile and fixed telephony service, satellite communications services, and Internet or other public data transmission services. Consequently, private enterprises can only participate in the VATS sector, including mobile communications resale services, Internet access, and Internet information services. Therefore, the potential supplements in the VATS section of the business classification become most relevant for private enterprises, as they suggest the authority is looking into allowing more services to be provided by these firms.
Further open access to the telecom industry
According to section 2(3) of the draft opinion, the specific means of opening access to the telecom industry are proposed as follows:
- Open the value-added telecommunication business by conducting pilot projects in Free Trade Zones.
- Expand the channels and scope for private enterprises to engage in the telecom industry.
- Foster the involvement of private enterprises in mobile communications resale services.
- Gradually reform the market access system of satellite Internet services.
While satellite services continue to fall under the BTS category, and are thus only open to state-owned enterprises, the resale of mobile communications is recognised as a pivotal domain for private sector involvement. Under the change proposed in this consultation, the scope of services for resale can be broadened and the resale of IoT services may be incorporated into the regulatory framework.
Towards a more open market for foreign investors?
According to a report by the China Academy of Information and Communications Technology (CAICT) on China’s value-added telecom services, the current investment landscape shows significant diversity. In the value-added telecom market of 2022, private enterprises dominate with a 95.22% share, while state-owned enterprises account for 4.18%. However, foreign enterprises, while comprising just 0.6% of the market, are experiencing the fastest growth. During 2021, China hosted 809 telecom companies with foreign investment, with a notable annual growth rate of 104.8%. It is particularly worth highlighting that foreign-invested companies enjoyed a significant 31.43% increase in their value-added business income.
Although market access in China remains a regulatory burden for foreign investors, efforts such as this consultation show that the nation is showing signs of fostering a more inclusive business environment and establishing a more comprehensive regulatory framework. An illustrative example of this was an announcement on 20 October that all the existing restrictions on foreign investment in the manufacturing sector would be lifted. This development has the potential to yield advantages for foreign telecom equipment manufacturing enterprises.
Next steps
This consultation invites comments on the draft opinion, with the deadline for submissions on 6 November 2023. Access Partnership’s Market Access team closely monitors the regulatory changes in China, as well as other Asian countries. If you would to submit comments to the consultation or be updated on the regulatory developments, please contact Xiaoya Sun at [email protected], Chrystel Erotokritou at [email protected], or Juliana Ramirez at [email protected].
