Technology, Media and Telecom Sectors: Encouraged, Restricted or Prohibited?

Previously, foreign investment was encouraged in large-scale production of integrated circuits with a line width of 0.35 micron or less, the production of large and medium-sized computers, semiconductors and new electronic components. The list has now been expanded to include the design of integrated circuits, development and production of software products, production of portable microcomputers, and the manufacture of CD-R, CD-RW, DVD-R and DVD-RAM.

Foreign investment is also encouraged in 15 categories of communications equipment. Notably, satellite navigation and positioning systems and their key components are now in the encouraged category although wholly foreign-owned enterprises are still not permitted in this area. Handsets, base stations and switching equipment for GSM, CDMA and other mobile communications systems as well as digital trunk system equipment are now classified as encouraged projects. Other encouraged projects include network access equipment for broadband networks and IP data communications networks.

In order to promote the establishment of research and development centres for new and high technology, and enterprise incubation centres, these activities are classified under the encouraged category. It should be noted, that under the Directing of Foreign Investment Provisions, provincial government authorities are permitted to approve foreign investment projects in the above-mentioned industries, regardless of the total amount of investment involved.

Restricted Industries

Telecommunications services have been moved from the prohibited category to the restricted category under the new Catalogue. Foreign investment in telecommunications services will be phased-in in accordance with the time table set out in China's WTO market access schedules. Although the new Catalogue is silent on the geographical restrictions specified in the market access schedules, such limitations may still apply; the December 2001 Administration of Foreign-funded Telecommunications Enterprises Provisions (外商投资电信企业管理规定) (the Telecom Regulations) refer to the promulgation of separate regulations regarding the geographical limitations on foreign-invested telecommunications enterprises.

However, the Catalogue classifies a number of media-related activities as restricted business activities. The manufacture of satellite TV reception equipment and its key components are restricted, as are printing activities, which may only be undertaken in the form of a Sino-foreign joint venture with the Chinese party having a majority interest. Interestingly, online sales have been added to the Catalogue as a restricted activity.

The Catalogue reflects the PRC's commitment to allow limited foreign participation in the printed media sector. Retail of books, newspapers and periodicals will be permitted by December 11 2002, and wholesale activities by December 11 2004. The distribution of audio-visual products (other than motion pictures) is limited to Sino-foreign cooperative joint ventures, with Chinese parties having a majority interest. The construction and operation of cinema theatres will also be allowed, but only in the form of joint ventures with majority Chinese equity shareholding.

Under the Provisions, provincial government authorities can approve foreign investment projects in restricted industries if the total amount of investment is less than US$30 million. This will not apply to projects in service sectors where foreign investment is to be phased-in. The State Council has taken action in this regard already, requiring central government approval for all foreign-invested telecommunications projects per the aforementioned Telecom Regulations.

Prohibited Industries

Various sectors of the media including radio, film, television and publishing are listed as prohibited industries and no foreign investment will be permitted. These include publication, general distribution and importation of books, newspapers and periodicals. The publication, production, general distribution and importation of audio-visual products and electronic publications (previously listed in the restricted industries) are now classified as prohibited. China's sensitivity over the dissemination of foreign news is reflected in the new Catalogue as news organizations remain under the prohibited category.

In addition, all radio, cable and TV stations and transmission coverage networks (including transmission and relay stations, radio and TV satellites, and microwave stations) are prohibited to foreign investment. Similarly, the production, publication, distribution and broadcasting of radio and TV programmes and the screening of videos remain in the prohibited category of the new Catalogue.

Catalogue Affects All

The new Catalogue will affect most foreign companies engaged in technology, media and telecommunications in the PRC. The aim of the Catalogue is to channel foreign investment into areas where the central government desires increased foreign involvement and to strictly control other sectors where foreign capital and expertise is required but only under close supervision such as the broadcasting and media sectors. Companies engaged in technology, media and telecommunications should take a close look at their existing operations in light of the new Catalogue to assess whether they have been promoted to the encouraged or restricted categories, or remain confined to the prohibited sectors of China's economy.

By Nancy Leigh,
Baker & McKenzie,
Hong Kong