On June 19, 2015, China’s Ministry of Industry and Information Technology (“MIIT”) promulgated a new policy, Opinions on Lifting Restrictions on the Foreign Equity Ratio for Online Data Processing and Transaction Processing Business (“Circular No. 196”), which allows foreign investors to hold up to 100 percent equity interest in e-commerce operations nationwide in China. Under Circular No. 196, MIIT authorized telecommunications administrations at provincial levels to implement the new policy, review foreign investors’ applications and issue the relevant qualification/operation licenses to foreign-invested e-commerce companies.

Background -

Foreign investment in the telecommunications industry has been strictly regulated and restricted in China. Foreign investment in value-added telecom services (“VAT Services”, including e-commerce operations) must be in the form of a Sino-foreign joint venture (“JV”), and foreign investors have only been allowed to take up to 50 percent equity interest in a VAT Services JV. Also, in practice, it has been extremely difficult for foreign investors to obtain the VAT Services license from the MIIT for any such JV. Thus, many foreign investors have used the so-called VIE (variable interest entity) structure to indirectly manage and operate their VAT Services business in China through contractual control over a domestic VAT Services license holder. Nevertheless, since September 2013, the Chinese government has been issuing regulations opening up the door progressively for foreign investment in e-commerce (see our 2015 client alert regarding the new policy on e-commerce business in the Shanghai free-trade zone. We have attached an addendum showing the progress of such policies in China on e-commerce business during the past two years.