Regulation of internet content services in China (Ⅰ)

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The internet content service sector is developing quickly in China with more and more creative service models and pioneering products emerging to encourage and bloom the internet sharing economy. Chinese government has strengthened the regulatory framework for this sector by imposing more restrictions and requirements on market participants, especially for foreign investors.

This note provides an overview of the regulatory regime governing various internet content feeding services in China. It sets out the approval and licensing requirements and highlights foreign investment restrictions for engaging in online content feeding services, including for example, internet news, online publishing, online audio-visual programme, internet live-streaming, internet information search, online games and mobile apps services.

1

Regulatory framework：

internet content services

Internet content services are the provision of a variety of content services through the internet. The Administrative Measures on Internet Information Services 2000 (2000 Internet Information Services Measures) issued by the State Council are the principal measures governing activities that provide information to online users through the internet.

The operation of fixed and mobile internet content services in China is subject to a variety of rules and regulations as they fall under the purview of different regulators with overlapping jurisdictional powers.

One common feature for internet content services is that they are considered as a type of value-added telecoms service (VATS), and in particular, the information service in VATS Category 2.

As a result, internet content services are subject to the body of legislation governing the operation of telecoms services in China, including:

Telecommunications Regulations of the People's Republic of China 2000 (2000 Telecoms Regulations).

Circular of the Ministry of Industry and Information Technology on issuing the "Classified Catalogue of Telecommunications Services" 2015 (2015 Telecoms Catalogue). 

Before engaging in any type of internet content service in China, a service provider must first obtain a telecoms licence for VATS from the principal telecoms regulator, that is, the central or competent local office of the Ministry of Industry and Information Technology (MIIT).

1.1 Regulators

The principal government bodies regulating internet content services include:

State Administration of Press, Publications, Radio, Film and Television (SAPPRFT). The SAPPRFT has many responsibilities including the administration of:

online radio, film and television;

audio-visual products and programs;

games; and

book publishing.

Cyberspace Administration of China (CAC). The CAC was first established in May 2011 and is the successor of the ninth bureau of the State Council Information Office (SCIO). Since April 2014, the CAC has been operating under the direct supervision of the Office of the Central Leading Group for Cyberspace Affairs (中共中央网络安全和信息化领导小组办公室) (OCLGCA). The CAC (which shares offices with the SCIO) is in charge of cyberspace security and internet content regulation and is the enforcement agency for the internet content service sector. Some of the SCIO's internet related administration functions were transferred to the CAC in April 2014, including issuing and administering the licences for providing internet news information and the licences for foreign institutions and their China subsidiaries to provide financial information services. The CAC is also known as the State Internet Information Office (SIIO).

Ministry of Culture (文化部) (MOC). The MOC is responsible for monitoring online games and online audio-visual programmes (such as podcasts or video streaming).

MIIT. The MIIT has a very wide jurisdiction, which includes telecoms services and the regulation of industry standards in the internet technology sector.

1.2 Foreign investment restrictions

The Catalogue of Industries for Guiding Foreign Investment (2017 Revision) (2017 Foreign Investment Catalogue) restricts foreign investment in the telecoms service sector. With limited exceptions, foreign investment in the telecoms sector is subject to a minimum domestic shareholding requirement of 50% for VATS. That is, the investment vehicle must be a Sino-foreign equity joint venture company (EJV) and the foreign shareholding ratio in the EJV is capped at 50% for VATS. This foreign shareholding cap can be exempted in some circumstances, including, for certain types of telecoms services (for example, operating for-profit e-commerce platforms (经营类电子商务)), or for businesses in selected pilot areas, or for Hong Kong or Macau service providers.

As a result, the minimum domestic shareholding rule restricts foreign investment in the internet content service sector and the foreign shareholding ratio is capped at 50% for VATS in any investment vehicle.

In addition to the foreign shareholding cap, foreign investors are expressly prohibited from investing directly in entities engaging in the following types of internet content services:

Internet news.

Online publishing.

Online audio-visual programme.

Internet cultural activities (excluding music).

Internet public information release.

(Clause 26, Part II Prohibited Industries, 2017 Foreign Investment Catalogue.)

Some industry or departmental rules may also impose additional foreign investment restrictions. For example, foreign capital is prohibited from engaging in any online games operation service in China.

The concern driving these industry policies probably is that these content feeding services could be sensitive in nature and therefore must be wholly-owned or controlled by the state or other domestic Chinese investors.

1.3 Variable interest entities (VIE) structure

Because of the difficulty of securing a VATS licence and many restrictions this involves, some foreign investors who wish to invest in VATS businesses in China were seen to make their investment through an alternative investment structure, usually known as a variable interest entity (VIE) or captive company structure.

The key feature of a VIE structure is that the foreign investor (in such structure) relies on a contractual arrangement rather than direct equity investment to acquire and control a subsidiary or subsidiaries operating the VATS business in China. The basis for the control is a suite of contracts (referred to as the VIE contracts) entered into between the foreign investor and the Chinese shareholder(s) (known as the nominees) of the subsidiaries. The VIE contracts allow the foreign investor to control and extract revenue from the subsidiaries without directly holding their equity.

The structure is very popular in the content service sector as it provides foreign operators access to China's internet content service sector while avoiding the restrictions applicable to foreign investment. The 2000 Telecoms Regulations do not expressly prohibit VIE structures in this sector, however, there are implied or express restrictions or prohibitions in the provisions or rules of certain sub-sectors such as internet news information, online publishing and online games. The VIE structure exists in a legal grey area and appears subject to a risk of being phased out for foreign-controlled businesses.

2

Obtaining a VATS licence

Internet content services belong to information services (B25) in VATS Category 2

2.1 ICP licence or SP licence?

VATS licences obtained under B25 of the 2015 Telecoms Catalogue are commonly known as the:

Internet content provider (ICP) licence, where the information is transmitted through the internet.

Service provider (SP) licence, where the information is transmitted through a non-internet information network (largely referring to a mobile network). For example, if a service operator provides mobile games downloading services only via a mobile network, the operator needs an SP licence.

Since most of the business activities or models discussed in this note are carried out through the internet, in most cases, the VATS licence required to be obtained accordingly should be an ICP licence.

2.2 Commercial or non-commercial internet content provider?                                            

The 2000 Internet Information Services Measures distinguish between commercial and non-commercial internet content services:

Commercial internet content services require an ICP licence.

Non-commercial internet content services need only a filing, and do not need to obtain a licence. This process is commonly known as an ICP filing.

(Articles 3 and 7-8, 2000 Internet Information Services Measures.)

Commercial internet content services mean providing online information or website construction services to internet users on a for-profit basis. Non-commercial internet content services mean providing open and sharable information to internet users at no cost. (Article 3, 2000 Internet Information Services Measures.)

All websites that provide internet content services on a commercial basis (including charging subscriber fees or making profit through advertisement revenue) are classified as commercial ICP services and must obtain an ICP licence.

Examples of a non-commercial website include:

Any company profile website (for company introduction purposes), for example, www.cssc.net.cn.

Any website owned by a manufacturing company for online sales of goods that the company has manufactured inside China, for example, www.gree.com.cn.

Any website owned by a foreign-invested commercial enterprise (FICE) for online sales of goods that the FICE distributes in China, for example, www.uniqlo.cn.

The latter two are considered as non-commercial websites because their online sale or distribution of goods is viewed as an extension of the sales channels allowed under the permitted scope of business of the owners of these websites. The mere fact that sales take place online does not create the need to obtain an ICP licence.

2.3 ICP licence or ICP filing?

All commercial ICPs must obtain an ICP licence from the central or competent local office of the MIIT.

The procedure for obtaining an ICP licence is the same as for obtaining any other type of VATS licence. The applicant must specify the websites (addresses) and the scope of information for which the ICP licence will be used. If the website or scope of services operated by an ICP changes, the ICP must apply for approval to the authority that issued its ICP licence to record the change.

All non-commercial ICPs must undertake a record-filing with the MIIT and the filing can be easily done through the designated MIIT website.

An ICP must display its ICP licence or filing number in a conspicuous location on its homepage.

Failure to obtain an ICP licence before operation will be subject to the following sanctions:

An order for correction.

Confiscation of illegal gains.

A fine from three to five times of illegal gains

A fine from RMB100,000 to RMB 1,000,000 if the illegal gain is less than RMB 50,000.

2.4 Other industry approvals for commercial ICPs

Commercial ICPs must obtain approvals from the MIIT before they seek any domestic or overseas public listing or co-operation with foreign investors through an EJV or a Sino-foreign co-operative joint venture company (CJV) (Article 17, 2000 Internet Information Services Measures).

ICPs engaging in news, publishing, education, medicine, health, pharmaceuticals, and medical equipment industries must obtain approvals from the relevant industry supervising authorities before applying for an ICP licence or making an ICP filing (Article 5, 2000 Internet Information Services Measures). For example, 

To engage in any internet news information business, the service provider must obtain an internet news information licence from the central or competent local office of the CAC before it is allowed to apply for an ICP licence.

To engage in any online publishing business, the service provider must obtain an online publishing service licence from the SAPPRFT before it is allowed to apply for a VATS licence.

2.5 General content monitoring obligations of ICPs

ICPs are prohibited from producing, copying, publishing and distributing any content that:

Opposes the basic principles determined in the constitution of China.

Jeopardises national security, divulges the state secrets, subverts state power or undermines the unity of the nation.

Damages the honour and interests of the nation.

Instigates ethnic hatred or racial discrimination, or harms ethnic unity.

Sabotages the religious policies of the state, or propagates heresies or superstition.

Disseminates rumours, disrupts the social order or undermines the social stability.

Disseminates obscenity, pornography, gambling, violence, murder, or horror or instigates others to commit a crime.

Infringes others' legitimate rights and interests by insulting or slandering others.

(Article 15, 2000 Internet Information Services Measures.)

ICPs that discover any of the above content must remove it immediately, keep a record and report it to the relevant authorities (Article 16, 2000 Internet Information Services Measures). These general obligations apply to ICPs for all specific sub-categories.

ICPs providing internet news distribution, online publishing or electronic bulletin services must keep records of the information provided, time of publishing, IP address and domain name for 60 days and provide to relevant authorities for inspection if required (Article 14, 2000 Internet Information Services Measures).

3

Internet news information

The Regulations on Administration over the Internet News Information Services 2017 (2017 Internet News Regulations) govern the provision of internet news information services in China.

The Implementing Rules for the Administration of the Licensing for Internet News Information Services (互联网新闻信息服务许可管理实施细则) (2017 Implementing Rules for Internet News) further specifies the legal requirements and the approval procedures of the 2017 Internet News Regulations.

The term "news information" means reports and comments on:

Social and public affairs such as politics, economy, military affairs and foreign affairs.

Social emergencies.

(Article 2, 2017 Internet News Regulations.)

The scope of "internet news information services" covers all internet news and information services provided to the public, through forms such as:

Websites.

Apps.

Forums.

Blogs or micro-blogs.

Public accounts.

Instant messaging tools.

Webcasts.

(Article 5, 2017 Internet News Regulations.)

Internet news information services are classified into:

Editorial and publishing services (采编发布服务).

Reposting services (转载服务).

Distribution platform services (传播平台服务).

Private investment in the editorial business of any internet news information service provider is expressly prohibited, and the business operation and editorial functions of the service provider should be separated (Article 8, 2017 Internet News Regulations).

In addition, the 2017 Internet News Regulations require an internet news information service provider to:

Maintain a chief editor who should bear overall responsibilities for the contents of internet news information (Article 11).

Improve information security, the real-time inspection of public information, and emergency response systems (Article 12).

Only provide services to users who are registered under real identities, and protect users' personal information (Article 13).

Where providing internet news information communication platform services, enter into service agreements with users stating the rights and obligations of both parties, and for any public accounts, review users' information, service qualification and scope and other information, file such information with the provincial-level CAC offices (Article 14).

When reprinting news information, indicate the original author and title, and ensure the source of the news information can be traced (Article 15).

 3.1 Licence for internet news information service

An internet news information service provider must obtain an internet news information licence (互联网新闻信息服务许可证) from the central or competent local office of the CAC (Articles 5 and 9, 2017 Internet News Regulations). The licence is valid for three years and can be renewed at the end of its term. The holder is required to submit a renewal application within 30 days before the expiry of its term.

To apply for an internet news information licence, an applicant must:

Be a legal person legally established in China.

Have its principal and chief editor being Chinese citizens.

Have full-time news editing personnel, content review personnel and technical supporting personnel commensurate with the services.

Have a sound management system for the service.

Have a sound information security management system and safe and controllable technical supporting measures.

Have premises, facilities and funds commensurate with the services.

(Article 6, 2017 Internet News Regulations.)

After the internet news information licence is issued, the service provider must, like all other VATS, obtain an ICP licence from the central or competent local office of the MIIT if the service is operating on a commercial basis (Article 5, 2017 Internet News Regulations). If the service is operating on a non-commercial basis, which is unusual in practice, an ICP filing will suffice.

An internet news information service provider must display the internet news information service licence number in a conspicuous location, establish a convenient complaint reporting channel and timely respond to complaints (Article 18, 2017 Internet News Regulations).

3.2 Foreign capital prohibited: internet news information service

Foreign investment in any internet news information service business is prohibited. Foreign investors cannot provide this type of service through either a wholly foreign-owned enterprise (WFOE) or a joint venture in China (Article 7, 2017 Internet News Regulations and Article 5, 2017 Implementing Rules for Internet News).

A domestic internet news information service provider may be allowed to co-operate, through a project-based contractual arrangement, with a foreign entity or foreign-invested enterprise (FIE) in businesses involving internet news information services, subject to a security assessment of the CAC (Article 7, 2017 Internet News Regulations).

The domestic service provider should provide the following information for the security assessment:

Information of the FIE to be co-operated, including its basic entity information and business licence.

Information of the proposed co-operation project, including a letter of intent, development plan and feasibility analysis report.

The opinion of the supervising departments (such as the local CAC or SAPPRFT offices) on the proposed co-operation.

(Article 8, 2017 Implementing Rules for Internet News.)

It is not clear what type of project co-operation is permitted or how it will be assessed. In practice, the assessment requirement may have an impact on the VIE structure where a foreign investor relies on a contractual arrangement to circumvent the prohibition in this sector. As a result, a VIE structure in this area may be subject to a security assessment.

4

Online publishing

The Provisions on Administration of Web Publishing Services 2016 (2016 Online Publication Provisions) jointly issued by the MIIT and the SAPPRFT govern online publishing services provided within China.

Online publishing is the public dissemination of online publications through an information network.

The term "online publications" means digital works with editing, production, processing and other publishing features, including:

Text, images, maps, games, animation, audio-visual books, and other original digital works containing useful knowledge or ideas of literature, art or science. 

Content consistent with published books, newspapers, periodicals, audiovisual products, electronic publications and other digital works.

New selections, arrangements and collections of the above content, such as a network document database. 

(Article 2, 2016 Online Publication Provisions.)

A traditional publisher that publishes books, audio products, electronics, newspapers and periodicals online must possess each of the following:

A web publishing platform including a dedicated website domain name and intelligent terminal applications. 

A specific web publishing service scope. 

Technical equipment, servers and data storage devices located within China.  

(Article 8, 2016 Online Publication Provisions.)

In addition to these qualification requirements imposed on traditional publishers, other types of online publisher must further satisfy the following requirements:

A specific entity name not identical to that of any other publisher and an articles of association for engaging in online publishing services. 

A fixed place of business. 

Content review and editing systems. 

Various personnel requirements, including a Chinese legal representative and a team of editors recognised by the SAPPRFT. 

(Article 9, 2016 Online Publication Provisions.)

4.1 Licence for online publishing service

An online publishing entity must obtain an online publishing service licence (网络出版服务许可证) from the SAPPRFT (Articles 7 and 11, 2016 Online Publication Provisions). The licence is valid for five years and can be renewed at the end of its term. The holder is required to submit a renewal application within 60 days before the expiry of the licence term (Article 14, 2016 Online Publication Provisions).

The online publisher should display its licence in a conspicuous location on its website homepage, and must not lend, lease, sell or transfer the licence or allow any other online information service provider to act in its name (Articles 19 and 21, 2016 Online Publication Provisions).

After the SAPPRFT licence is issued, the publisher must, obtain a VATS licence from the central or competent local office of the MIIT, if the service is operating on a commercial basis (Article 15, 2016 Online Publication Provisions).

The publisher must obtain an authorisation from the copyright owner when providing any overseas publication online (Article 21, 2016 Online Publication Provisions).

If the publication involves an online game, the publisher should file a review application to the SAPPRFT's via the latter's provincial counterpart (Article 27, 2016 Online Publication Provisions). 

4.2 Foreign capital prohibited: online publishing

Foreign investment in any online publishing service is prohibited. Foreign investors cannot provide this type of service through a WFOE or a joint venture in China. However, a foreign entity or a foreign citizen, or an FIE can co-operate on a project basis with a Chinese publisher subject to the prior approval of the SAPPRFT. (Article 10, 2016 Online Publication Provisions.)

If a foreign entity provides online publishing services entirely based on infrastructures located outside of China and customers within China access such services on a "cross-border" basis, arguably it is not subject to the 2016 Online Publication Provisions as such services are not provided within the territory of China.

5

Online audio-visual programme

The following regulations apply when audio-visual programmes are broadcasted in China over the internet or other information networks:

Administrative Provisions for the Internet Audio-Video Programme Service 2007 (2007 Audio-visual Programme Provisions).

Circular on Further Strengthening the Administration of Online Audio-visual Programme Including Online Dramas and Micro Films 2012 (关于进一步加强网络剧、微电影等网络视听节目管理的通知).

Regulations on the Administration of Private Network and Directional Transmission of Audio-visual Programme Services 2016 (专网及定向传播视听节目服务管理规定) (2016 Audio-visual Programme Measures).

Classified Catalogues of Internet Audio-visual Programme Services (for Trial Implementation 2017) (互联网视听节目服务业务分类目录(试行)).

The 2007 Audio-visual Programme Provisions apply to the following activities:

The production, redaction and integration and provision over the internet (including the mobile internet) of audio-visual programmes to the general public.

The provision to third parties of services for the uploading and broadcasting of audio-visual programmes.

(Article 2.)

The 2007 Audio-visual Programme Provisions principally regulate the online streaming of audio-visual content (视音频网站) or the provision of audio-visual content through a software client (视音频客户端软件).

The 2016 Audio-visual Programme Measures specifically apply to the transmission of radio and television programmes, and other audio-visual programmes to the public over a private network and directional transmission channels. They apply when the ultimate recipient of the transmission is a television set or any kind of hand-held electronic devices including a laptop computer. (Article 2, 2016 Audio-visual Programme Measures.)

Private network and directional transmission channels include:

Local area networks (局域网络).

Virtual private networks (互联网架设虚拟专网).

Other directional transmission channels (that is, through the internet and other information networks). 

The subject of transmission includes:

Content provision.

Integrated broadcast control.

Content distribution. 

The means of transmission can be:

Internet Protocol television (IPTV).

Private network mobile TV. 

Internet TV (known as OTT TV). 

(Article 2, 2016 Audio-visual Programme Measures.)

5.1 Licence for online audio-visual programme service

An online audio-visual programme service provider must obtain an audio-visual programme broadcasting licence (that is, the information network audio-visual programme licence (信息网络传播视听节目许可证)) from the SAPPRFT (Article 5, 2016 Audio-visual Programmes Measures and Article 7, 2007 Audio-visual Programme Provisions).

The online audio-visual programme licence is valid for three years and can be renewed at the end of its term. The holder is required to submit a renewal application within 30 days before the expiry of the licence term (Article 9, 2016 Audio-visual Programme Measures and Article 10, 2007 Audio-visual Programme Provisions).

After the online audio-visual programme licence is issued, the service provider must obtain a VATS licence from the central or competent local office of the MIIT, if service is operating on a commercial basis (Article 11, 2007 Audio-visual Programmes Provisions).

5.2 Foreign capital prohibited: online audio-visual programme

Foreign investment in any online audio-visual programme service is prohibited.

The 2016 Audio-visual Programme Measures and the 2007 Audio-visual Programmes Provisions require the licence holder for this service to be wholly state-owned or state controlled (Article 6, 2016 Audio-visual Programmes Measures and Article 8, 2007 Audio-visual Programme Provisions).

However, the service provider may adopt a joint venture or co-operation model to carry out the following ancillary or supporting activities: 

Programme production and sales.

Advertising.

Marketing and promotion.

Business co-operation.

Payment settlement.

Technical services.

(Article 10, 2016 Audio-visual Programmes Measures.)

The service provider must apply for a record-filing of the relevant joint venture or co-operation agreement with the SAPPRFT (Article 10, 2016 Audio-visual Programmes Measures).

This content of this practice note was first published on Practical Law China with the title of “Regulation of internet content services in China” and is published with permission by Thomson Reuters.

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合伙人  上海办公室 

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