This morning I read a catchy titled article on CircleID “China Closing the Door to New Technologies”. I was trying to make sense of what all the fuss is about ...

So I called up my friends in Ministry of Industry and Information (MIIT) for lunch to find out what’s going.

Background

The document is called ???????? (Category of Telecommunications Services) that is now calling for public comments. This has been something MIIT has been working on for quite some time now. Many companies, domestic and international companies, have been consulted and provided feedback before this publication.

First, Telecommunication Services in China are broadly classified into two categories: (1) Basic Telecommunication, e.g. Fixed, Mobile, Satellite, etc. and (2) Value-Added Services. In 2003 version, the VAS covers the following:

• Online Transaction Based Service (e.g. E-Commerce, Online Banking)
• Domestic Multiparty Conferencing
• IP-VPN
• Internet Data Center
• Store and Forward (e.g. X.400, Email, Internet Fax etc)
• Call Center
• Internet Content Provider
• Internet Service Provider

Considering the advancement of Internet over the last 10 years, obviously the list is due for an update.

What’s the big fuss?

Essentially, the 2013 update has expanded the category drastically, especially the part on Value-Added Services covering every possible Internet-based operation you can imaging right now and a catch-all requirements to ?? or “open a file” with MIIT for any services not listed.

The ones that have been making the most noises are the usual suspects: Microsoft, Google and Amazon.

In particular, this effectively put a dent on their plans on “Cloud Computing” because it is now part of the VAS that is under the direct regulatory control of the Telecommunication Division under MIIT.

Now, for most net-heads who has resisted government regulation on anything related to Internet, and worst, under the old regime of Telecommunication banner, the 2013 update is indeed a big deal.

Unfortunately, this is really nothing new within China. All these years, China has always considered Internet as just a Value-Added Service under the Telecommunication Services. If the 2003 category does not give you the hint, then check the definition of “Value-Added & Paging Services” in the China’s Commitment under the WTO Agreement.

The original article claims: “Classifying services such as cloud computing as Value Added Telecommunications Services appears to be an attempt on China’s part to avoid their WTO accession commitment not to impede market access to foreign suppliers of computers and related services, most of which are now captured by the revised catalog.”

Sorry but no. Internet has always been part of “Value-Added & Paging Services” under the China WTO accession document and according to Liberalization Schedule, foreign companies are allowed to own up to 50% of such ventures.

What does the 2013 update means for Microsoft, Google and Amazon who is trying to roll out their cloud service in China?

Microsoft Azure, Google AppEngine, Amazon AWS have not been allowed to operate within China before this update since there is no licensing classification prior. In theory, the China clones such as Shanda Cloud, Aliyun and Huawei Cloud are also operating in a grey area as they do not have license either.

With the new update, there is now a licensing classification but they can only own up to 50% of the venture… in theory. In practice, it is practically impossible to do so since only four sino-foreign joint ventures have been approved by MIIT since 2003.

But at least it is possible to get a license. And they may try to push for it to get it via WTO. If not, there are structures for a foreign company to “control” the license while not owning it. Most lawyers may not even sign off on these structures but it could be done and have been done.

What does it means for the rest of the Chinese Internet companies?

It means much clearer licensing regime, at least from MIIT. One ICP license* and One VAS license that may have multiple approved categories.

You still probably need other licenses from other Ministry and Department depending on the nature of the business (e.g. video streaming requires additional licenses from SARFT) but at least for MIIT, it is more streamline.

What about domain names industry?

I assume the audience in CircleID may also be interested in domain name industry side.

Domain names are considered a Telecommunication Resource, like Telephone numbers and IP Address. As such, there are other regulations for the domain name, namely China Domain Name Regulation, 2004 Regulation No. 30. But that is also due for an update that may be coming anytime soon with the pending release of new gTLDs.

But if you are providing domain name services, e.g. Registrars, then you might want to take a look at Category B12 “Internet Resource Allocation Services”, Category B21 “Transaction Services” and Category B26-1 “Domain Name Resolution Services”.

Conclusion

If this sound complicated, I am sorry to say I haven’t really even gone into the details.

But this is China and I learned a long time ago to live with the system, like it or not.

* ICP License (ICP ??) is a story for another which is also due for an update.