The law firm perspective

In the era of digital information and intelligence, the internet data center (IDC) has become a key IT resource for corporate development and expansion. Multinational companies (MNCs) must manage their data centers around the world carefully to support their growing businesses. MNCs in China, in particular, need to address and understand the following issues with respect to establishing and maintaining servers while complying with local data laws:

The purpose of the data centers/cloud servers

Understanding the purpose of data centers or cloud servers is the first step. Circumstances differ depending on whether these are for a company's internal use or for providing such services to third parties.

Existing PRC laws do not prohibit or restrict MNCs from establishing data centers or private cloud servers in China for their own internal use. MNCs can set up a data center or a private cloud within the PRC territory to support their business, and allow their local subsidiaries or foreign affiliates to access to those centers and servers.

However, if the intention is to provide services to third parties, the legal status becomes more complex. According to the PRC Telecommunications Regulations and the newly updated Classified Catalogue of Telecommunications Services, these activities are deemed to be IDC services (including internet resources collaboration services) and therefore require an IDC license. Currently, the IDC business is not open to all foreign investors. Only a few qualified Hong Kong or Macau telecom providers are permitted to engage in these services through joint ventures with Chinese partners under the Closer Economic Partnership Arrangement. The Hong Kong or Macau entity's ownership in the venture is capped at 50%, but the Chinese partners do not necessarily have to be state-owned enterprises (SOEs).