Full foreign ownership of e-commerce businesses permitted in the Shanghai FTZ: But is it a breakthrough?
30 January 2015Hogan Lovells TMT Alert
Foreign investors are now permitted to establish wholly foreign-owned e-commerce companies in the Shanghai (Pilot) Free Trade Zone ("FTZ"). Formerly, foreign-ownership in such entities was capped at 55% in the FTZ and therefore restricted to Sino-foreign joint venture companies.
Outside the FTZ, the cap on foreign ownership is still 50% pursuant to the Circular of the Ministry of Information Industry on the Readjustment of the Classification Catalogue of Telecommunication Services issued on 1 April 2003 ("Telecoms Catalogue") and the Foreign Invested Telecommunications Enterprise Administrative Provisions issued by the State Council effective 1 January 2002. In 2013, the Ministry of Industry and Information Technology ("MIIT") issued a draft new version of the Telecoms Catalogue, but it is unclear when or whether that will ultimately become law.
This change, which takes effect immediately, on a pilot basis, was announced by MIIT on 13 January 2015, in its Announcement on Lifting Restrictions for Foreign Equity in Online Data Processing and Transaction Processing Services (Operational E-commerce Businesses) in the Shanghai Free Trade Zone (关于在中国(上海)自由贸易试验区放开在线数据处理与交易处理业务(经营类电子商务)外资股权比例限制的通告) ("Announcement").
The Announcement means that foreign investors will be able to apply for Value-added Telecommunications Services Permits ("VATS Permits") that allow their wholly-owned subsidiary enterprises in the FTZ to engage in "e-commerce business". However, the challenge for foreign investors will be to work out what "e-commerce business" really entails.