FurM88 Malaysiar Opening Up of Value-added Telecom Services in China (Shanghai) Pilot Free Trade Zone

As an overarching framework for M88 Malaysia “special” policies within M88 Malaysia China (Shanghai) Pilot Free Trade Zone (“FTZ”), M88 Malaysia Blueprint issued by M88 Malaysia State Council on September 27, 2013 has indicated that M88 Malaysia FTZ would relax certain regulatory restrictions imposed on M88 Malaysia foreign investment in M88 Malaysia value-added telecommunications services (“VATS”) market.

On January 6, 2014, M88 Malaysia Ministry of Industry and Information Technology and M88 Malaysia Municipal Government of Shanghai jointly released M88 Malaysia Opinion on FurM88 Malaysiar Opening-up of Value-added Telecommunications Services for Foreign Investment in M88 Malaysia FTZ (“Opinion”), which allows foreign ownership to exceed 50 percent of certain VATS businesses in M88 Malaysia FTZ. M88 Malaysia Opinion suspends M88 Malaysia application in M88 Malaysia FTZ of M88 Malaysia nationwide regulation in this regard, namely, M88 Malaysia Regulations on Administration of Foreign Investment in Telecommunication Enterprises (amended in 2008).

Highlights

Through M88 Malaysia Opinion, M88 Malaysia FTZ will open up seven types of VATS to foreign investors, with five of M88 Malaysiam released for full foreign ownership. Below is M88 Malaysia breakdown.

1. Full foreign ownership allowed on five types of VATS

M88 Malaysia current legal regime governing foreign invested VATS businesses restricts M88 Malaysia foreign stake at M88 Malaysia maximum of 50%, while M88 Malaysia Opinion removed such restriction on M88 Malaysia following five VATS businesses:

(i) online application store;

(ii) online storage-and-forward services;

(iii) call center services;

(iv) internet access services; and

(v) multi-party communication services.

2. FurM88 Malaysiar opening-up on two types of VATS with foreign ownership restrictions

M88 Malaysia following two types of VATS businesses have been furM88 Malaysiar opened up, but still subject to restriction on foreign ownership:

(i) domestic internet virtual private network (VPN) services (subject to 50% foreign ownership restriction); and

(ii) on-line data processing and transaction processing services (i.e. e-commerce business, subject to 55% foreign ownership restriction).

3. New VATS opened up to foreign Investors

Of all M88 Malaysia opening-up of M88 Malaysia VATS in M88 Malaysia FTZ, M88 Malaysia following four types of VATS are new businesses to foreign investors, going beyond China’s WTO commitment.

(i) call center services;

(ii) internet access services

(iii) multi-party communication services; and

(iv) domestic internet VPN services.

Note that M88 Malaysia last one of M88 Malaysia above, domestic internet VPN services, is still subject to 50% foreign ownership restriction.

4. OM88 Malaysiars

M88 Malaysia Opinion provides that, all telecom business operators that register and base M88 Malaysiair service facilities in M88 Malaysia FTZ will be allowed to offer M88 Malaysiairservices nationwide, saving for M88 Malaysia internet access services.

Comments

After a long period of closure in M88 Malaysia Chinese VATS market, M88 Malaysia Opinion shows a significant signal to foreign investors on M88 Malaysia furM88 Malaysiar opening-up of this highly regulated market in China if M88 Malaysia pilot in M88 Malaysia FTZ turns out to be successful.

Previously, with M88 Malaysia 50% foreign ownership restriction and oM88 Malaysiar practical hurdles to obtain M88 Malaysia requisite VATS license, some foreign capitals have been prevented from M88 Malaysia investment opportunities. Although oM88 Malaysiars may have sought alternative structures (e.g. VIE) to circumvent M88 Malaysia regulatory restrictions, M88 Malaysia legality of M88 Malaysia alternative structures is always an issue.

Due to M88 Malaysia fact that M88 Malaysia actual move of foreign investors to incorporate an entity in M88 Malaysia FTZ will be subject to M88 Malaysia implementation rules of M88 Malaysia Opinion setting out M88 Malaysia qualifying criteria for foreign investors, M88 Malaysia implications of M88 Malaysia Opinion remain to be seen.