Making sense of online content licensing in China
Website development in China is booming and foreign investment in
China’s Internet-realm has always been heavily regulated. Although
there have been some promising advances in the sector,
understanding the different licenses needed to operate a website
in China for foreign investors can be a daunting and confusing task.
Website hosted outside of China
A website hosted and operated from outside of China requires no specific licenses in China. China’s Internet regulations are not there to regulate the operation of foreign-hosted websites. For companies that continue to use their website outside of China – meaning the servers are outside mainland China be assure that there is no requirement to secure specific licenses in China.
HOWEVER, a website hosted outside of China which seeks to cater to the Chinese market may be subject to other challenges, such as:
increased slowness and dormancy and
the potential of having China’s Firewall acting as a true barrier to gaining access to the site.
China’s Firewall is supposed to be centered on blocking ANY undesirable local and/or foreign website, however, the standards for blocking sites are not transparent, and some sites may be readily available one day, but not available on another day. Websites are particularly susceptible to targeting by the Great Firewall if they contain content that could be deemed politically or socially sensitive. For example, websites that appear to rely on Google APIs or resources may be difficult to access from China, or a website may be blocked because it contains a word which is on the unpublished blacklist used by China’s Firewall’s filter. Restrictions tend to be tightest around the time of politically significant dates.
Website hosted within China
Compared to a website hosted outside of China, a local website hosted within China can be faster and more stable for end-users in China. HOWEVER, a website hosted within China is also subject to the full Chinese licensing regime.
ICP License vs. ICP Filing
A company operating a website within China needs to obtain an Internet Content Provider License (“ICP”) or complete an Internet Content Provider Filing, depending on the activities and usage of the website.
Under Chinese law, a company that provides “commercial internet information services in China” (i.e. generates revenue or makes a profit from internet information services – an ecommerce site) must secure an ICP license to carry out its business, while a company providing “non-commercial internet information services in China” (i.e. the website is utilized purely as a marketing tool – a non-commercial website) only needs to complete an ICP filing.
In both scenarios the websites must have registered domains in China and require a Chinese-registered company to initiate these applications. To clarify this means that your Representative Office, Wholly Foreign Owned Enterprise, Foreign Invested Enterprise, Joint Venture within China will be the entity OWNING AND PURCHASING the domain within China from a Chinese domain-supplier. It is important to note that currently regulations state that only Chinese nationals and Joint Ventures with foreign shareholding not exceeding 50% are qualified to apply and secure an ICP license, which is used to provide information services “for profit”.
Typically business models in China show that foreign investors that operate commercial/ecommerce websites in China typically partner with a local Chinese natonal or company to set up a joint venture, or set up a “holding company” where the entity is registered in the name of the Chinese national or Chinese company who contractually agrees to operate the company according to instructions from the foreign investor (sometimes called a “VIE”). These types of companies are very common in China’s internet sector (almost all Chinese internet companies that are listed overseas use this structure), although the structure naturally has its risks. In addition to these shareholding requirements, other requirements for securing an ICP license include sufficient capital and professional staff, ability to provide long-term services, a minimum registered capital, infrastructure, and no prior record of violating the law.
Other types of online businesses
In reference to the ICP license and ICP filing discussed above, here are two special cases which do require some form of licensing:
If a website posts advertisement for third-party products, especially when a fee is charged for the posting, the website will be deemed to provide internet information services “for profit,” and an ICP license is required.
Online Shop for a website that sells its own products without providing any other “for-profit” services, an ICP filing is sufficient. HOWEVER, if a website is used as a platform to sell third-party products, a value-added telecommunications license for “online data processing and transaction processing service” is required. China relaxed relevant rules on such licenses in 2015, and this license is available to 100% foreign-owned companies. The regulations are not clear as to whether an online retailer would be required also to secure a separate ICP license. If an ICP license is required by local authorities, this would disqualify 100% foreign ownership. It needs to be made clear that in reality, almost all of China’s e-commerce websites hold an ICP license. In part this is for historic reasons. Such business was traditionally classified as a type of “commercial internet information service.” by officials when applying the criteria of “for profit” as discussed above. However, this also adds to the confusion in different jurisdictions in terms of how the rules should be applied currently.
For any company looking to implement a website hosted within China – whether for commercial or non-commercial purposes - consider the rules to be grey. Each company needs to investigate independently with the various government bureaus (to make sure there is consensus) what application needs to be filed both on the short-term objective for the website and the long-term objective as well. Consult with a specialist to advise you and aid you in speaking with the various government authorities.
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DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.