New negative list sets internet market entry limits

A government drive to encourage digital innovation and high technology is facing challenges in streamlining different ministry-level regulation­s that some companies often have trouble navigating.

“The legislators and ministries need to coordinate among themselves so that all these various lists and catalogues do not contradict each other,” said Ben Qi, partner at Jin Mao Partners. “It can be difficult and costly to comply for companies that operate across a range of sectors, industries and locations in China, and even more so as key IT infrastructure becomes essential to all businesses.”

Businesses in the internet sector, in particular, have found the lack of clear implementation of applicable laws, regulations and the permit system related to doing business online especially frustrating, said Philip Qu, a TMT-focused and founding partner of TransAsia Lawyers.

The Internet+ initiative was adopted in central guidelines on July 1, 2015 through the Guiding Opinions for Actively Enhancing “Internet+” Actions. The State Council encouraged values such as entrepreneurship, innovation, collaborative manufacturing, modern agriculture, smart energy, e-commerce and artificial intelligence, aimed at giving rise to new industry models.

The Internet Negative List names the areas off limits to any investor or company. It does not differentiate between domestic and foreign investors, unlike the Foreign Investment Industrial Guidance Catalogue and the Special Administrative Measures for Foreign Investment in the Pilot Free Trade Zones (Negative List).

It covers:

• Information transmission, software and IT services;
• Finance;
• Water resources, environment and public utilities;
• Manufacturing;
• Transport, warehousing and post;
• Leasing and commercial services; and
• Culture, sports and entertainment.

The draft's release follows the State Council's 2015 Opinions on the Implementation of the Market Access Negative List System. The Draft Negative List for Market Access (Market Access Negative List) was issued and piloted this year in Tianjin, Shanghai, Fujian and Guangdong—the four municipalities and provinces where the free trade zones are located. It applies to both domestic and foreign entities investing in these areas.

“It is unclear whether the Internet Negative List will only be piloted in those regions covered by the 2016 Market Access Negative List, or if it will be rolled out nationwide from the start,” said Qu.

He said that some of the sources of legislation quoted in the Internet Negative List were outdated and no longer in effect, and need to be adjusted.

“Because rapid regulatory change inevitably creates ambiguities and inconsistencies, all investors should have a clear sense of the big picture (direction and status of reform and deregulation) and closely read through the specific issues relevant to their particular business,” Qu said.

At a glance:

This table compares the main negative lists and catalogues relevant to investors—domestic and foreign—with links to full analyses and translations.

By Katherine Jo

China's top economic planning body has released a draft negative list setting market access limits for the internet industry.

The National Development and Reform Commission's Negative List for Internet Market Access (First Batch, Trial Version) (Draft for Comments) (国家发展改革委办公厅互联网市场准入负面清单 (第一批，试行版) (征求意见稿)) (Internet Negative List), released on October 21, categorizes specific internet businesses into one of 30 “restricted” and six “prohibited” industries.

The draft is part of a broader national push to promote “Internet+”, a proposal put to the National People's Congress by Premier Li Keqiang in March 2015. The plan involves adding web-based solutions, such as mobile, cloud computing, big data or Internet of Things, to other fields as a means of advancing China's new economy. The term is similar to Industrial Internet used by the U.S., and Industry 4.0 put forward by Germany.

A government drive to encourage digital innovation and high technology is facing challenges in streamlining different ministry-level regulation­s that some companies often have trouble navigating.

“The legislators and ministries need to coordinate among themselves so that all these various lists and catalogues do not contradict each other,” said Ben Qi, partner at Jin Mao Partners. “It can be difficult and costly to comply for companies that operate across a range of sectors, industries and locations in China, and even more so as key IT infrastructure becomes essential to all businesses.”

Businesses in the internet sector, in particular, have found the lack of clear implementation of applicable laws, regulations and the permit system related to doing business online especially frustrating, said Philip Qu, a TMT-focused and founding partner of TransAsia Lawyers.

The Internet+ initiative was adopted in central guidelines on July 1, 2015 through the Guiding Opinions for Actively Enhancing “Internet+” Actions. The State Council encouraged values such as entrepreneurship, innovation, collaborative manufacturing, modern agriculture, smart energy, e-commerce and artificial intelligence, aimed at giving rise to new industry models.

The Internet Negative List names the areas off limits to any investor or company. It does not differentiate between domestic and foreign investors, unlike the Foreign Investment Industrial Guidance Catalogue and the Special Administrative Measures for Foreign Investment in the Pilot Free Trade Zones (Negative List).

It covers:

• Information transmission, software and IT services;
• Finance;
• Water resources, environment and public utilities;
• Manufacturing;
• Transport, warehousing and post;
• Leasing and commercial services; and
• Culture, sports and entertainment.

The draft's release follows the State Council's 2015 Opinions on the Implementation of the Market Access Negative List System. The Draft Negative List for Market Access (Market Access Negative List) was issued and piloted this year in Tianjin, Shanghai, Fujian and Guangdong—the four municipalities and provinces where the free trade zones are located. It applies to both domestic and foreign entities investing in these areas.

“It is unclear whether the Internet Negative List will only be piloted in those regions covered by the 2016 Market Access Negative List, or if it will be rolled out nationwide from the start,” said Qu.

He said that some of the sources of legislation quoted in the Internet Negative List were outdated and no longer in effect, and need to be adjusted.

“Because rapid regulatory change inevitably creates ambiguities and inconsistencies, all investors should have a clear sense of the big picture (direction and status of reform and deregulation) and closely read through the specific issues relevant to their particular business,” Qu said.

At a glance:

This table compares the main negative lists and catalogues relevant to investors—domestic and foreign—with links to full analyses and translations.