Database

Since 2015, investment in manufacturing of telecommunication facilities and other electronic devices is no longer prohibited as restrictions were relaxed in the 2015 Foreign Investment Industrial Guidance Catalogue. However, caps might still apply.

Foreign investment in basic telecommunication services (fixed, mobile and internet) is capped at 49%. However, in practice, all telecommunication companies are Chinese.

Internet publishing, including online games, is a sector where investment is prohibited. This sector has been added in the 2015 Foreign Investment Industrial Guidance Catalogue.

Foreign investment in value-added telecommunication services (including: online database storing and searching; electronic data exchange; online data processing and transactions processing; domestic multiparty communication services; IP-VPN; ISP; ICP and video tele-conferencing) is capped at 50%. An exception applies to e-commerce, for which 100% foreign equity and ownership is allowed.

Imported and exported encryption products must be certified by the Office of State Commercial Cryptography Administration (OSCCA). The use of encryption products without OSCCA certification is prohibited, regardless of public, commercial or individual nature of use.

However, it is reported that, in practice, only Chinese or Chinese-owned companies are eligible for OSCCA certification to sell, produce and carry out R&D for encryption technology in China, as well as to gain product licensing. Foreign or foreign-owned companies, even if based in China, are excluded.

In practice, this means that using foreign encryption products in public procurement is effectively prohibited in China, and that international firms are therefore excluded from government contracts for ‘information security products’ such as smart cards, firewalls and secure databases.

The Multi-level protection scheme (MLPS) introduced by the Ministry of Public Security prohibits government authorities with IT systems classified as "critical infrastructure" to purchase and incoporate foreign IT products. The MLPS requires all IT systems in China to be classified on different levels of security, from one to five (with the most sensitive systems designated as level 5).

MLPS regulations bar Chinese information systems graded level three and above from incorporating foreign products. Systems labeled as grade level three and above, for instance, must solely contain products developed by Chinese information security companies and their key components must bear Chinese intellectual property. Companies making systems labeled as grade level three and above must disclose product source codes, encryption keys, and other confidential business information.

To date, government agencies, firms in China’s financial sector, Chinese telecommunications companies, Chinese companies operating the domestic power grid, educational institutions, and hospitals in China have issued hundreds of request for proposals (RFPs) incorporating MLPS requirements. By incorporating level three requirements, many RFPs rule out the purchase of foreign products.

China is currently an observer to the WTO Agreement on Government Procurement, but is negotiating its accession.

In the Chinese public procurement regulatory framework, there is an active Buy Chinese policy. In principle, only Chinese companies are allowed to bid in public tenders and foreign ones are only allowed under exceptions. Government agencies and related entities are required to purchase equipment and technology from Chinese state or privately owned manufacturing companies. There are also reports of insufficient publicity of public tenders. Furthermore, it is reported that central and local entities tend to implement in a very broad manner those provisions, going far beyond discriminations imposed by the law.

The Directive Number 618 aims to promote the usage of Chinese products by creating a directory of accredited products that are eligible for government procurement contracts.

In order to gain accreditation, companies and their products in these fields must satisfy a number of criteria. Accreditation is for two to four years and can be renewed. To qualify for the catalogue a product must have been produced by an enterprise that has full ownership of intellectual property in China through its own research and development. Alternatively, a product may have been produced by a Chinese enterprise, work unit, or citizen that has legally obtained the China intellectual property rights or legal rights. Furthermore, the product trademark must be owned by a Chinese company registered in China and the product must be certified by the China National Certification Administration or its provincial departmental branches.

The application guidelines attached to the notice impose additional conditions that could present a high hurdle to non-Chinese companies and products created by non-Chinese companies appear to be at a severe disadvantage in gaining accreditation under the program. In particular, any use, disposal, or improvement of the intellectual property underlying the accredited product must not be subject to any foreign restrictions. Furthermore, any trademark associated with the product must be registered in China first and may not be restricted by foreign brands.

The Multi-level protection scheme (MLPS) introduced by the Ministry of Public Security prohibits IT systems classified as "critical infrastructure" to purchase foreign IT products. The MLPS requires all IT systems in China to be classified on different levels of security, from one to five (with the most sensitive systems designated as level 5).

MLPS regulations bar Chinese information systems graded level three and above from incorporating foreign products. Systems labelled as level three and above, for instance, must solely contain products developed by Chinese information security companies and their key components must bear Chinese intellectual property.

Government agencies, firms in China’s financial sector, Chinese telecommunications companies, Chinese companies operating the domestic power grid, educational institutions, and hospitals in China have issued hundreds of request for proposals (RFPs) incorporating MLPS requirements. By incorporating level three requirements, many RFPs rule out the purchase of foreign products.

A report by the National Development and Reform Commission of China and the Ministry of Finance bans the purchase of certain foreign IT products for selected government procurement lists. For example, one government procurement list banned ten Apple Inc. products, including the iPad, iPad Mini, MacBook Air and MacBook Pro.

A separate procurement list includes some Apple computers that departments can continue to buy on a smaller scale, i.e. purchases totalling less than 1.2 million yuan (USD 195,000). Products from Dell Inc., Hewlett-Packard Co. and Chinese maker Lenovo Group Ltd. were included on both lists. This ban applies to all central Communist Party departments, government ministries and local governments.

The Central Government Procurement Centre banned Windows 8 from all government computers. The Central Government Procurement Centre said in a note after it accepted “its latest batch of electronic devices” that “No computer products may be installed with the Windows 8 operating system”. However, it did not mention any reasons for the ban.

Foreign security providers of antivirus software are excluded from public procurement. In the result of the public tender for central government procurement of electronic information products in 2014, all foreign security providers in the category of Antivirus Software such as Kaspersky and Symantec were excluded from the list for national security reasons. Only five Chinese providers, i.e. 360, Jiangmin, Rising, Kingsoft, and KILL, are listed.

Foreign companies cannot benefit from the export credit scheme at the China Exim Bank or SINOSURE, which covers only Chinese companies and exporters. However, they can benefits if they are part of a joint venture. Additionally, among the main conditions requested in order to benefit from the export credit is that the Chinese content should generally not be below 60% of the contract value.

Circular 43 replaced the 3% business tax rate for telecommunications services with 11% VAT rate for basic telecommunications services and 6% VAT rate for value-added telecommunications services. The Circular contains a specific provision under which telecommunications services (both basic and value-added) provided by Chinese entities to overseas entities are exempt from VAT.