Newly Revised Investment Catalogue: JV can Operate Online Music ...

The Guiding Catalogue of Foreign Investment in China (the Catalogue) revised in the last year has come into effect on 30^th January, 2012. The new Catalogue contains some modified regulation on foreign investment in China, and today Bridge IP Law Commentary would like to introduce you the change in respect of internet business in the Catalogue. (the image above is the logo of myspace.cn, invested by Mr. Rupert Murdoch through VIE, which is claimed temporary shut down for technology reasons)

I. Permission of foreign investment in online music industry

By the latest version of the Catalogue, the internet visual and audio service, the running of internet service business place and internet culture operations are still regulated in the prohibited category for foreign investment, while the exception of online music is expressed. That means it no longer bans the foreign investment in the online music industry, while others are still under the prohibition. Actualluy, however, foreign investors tended to get around the prohibition through VIE, and that has been discussed by Bridge IP Law Commentary in Can Pandora Legally Operate in China?

II. The possible obstacle to the online music business of foreign investors

Despite the express deletion from the prohibited category in the new Catalogue, the online music industry may also face the rigorous supervision by the Chinese administration for the special ?conditions? in the country. For the newly opened industry, two licenses of ICP service and internet culture business is legally demanded. Could there be any obstacles in the application of the licenses? The following analysis is from us on the issue:

1. ICP Service License

The license is issued by the Ministry of Industry and Information Technology under the Management Measures on the Telecommunication Business License (the Measure), by which no regulations on foreign investment have been promulgated yet. But according to the Regulation on the Management of Foreign-invested Telecommunication Companies, the foreign invested share shall occupy no more than 50% of the total in the foreign invested telecommunication company, including radio call service in basic telecommunication service. Thus it could be concluded the license has been available to joint ventures, and those companies running online music with no more than 50% foreign capital are entitled to apply for the license after the new Catalogue.

2. Internet Culture Business License

The Internet Culture Business License is the qualified permit approved and granted by the Ministry of Culture on those operational enterprises in internet culture business, with its main issuance legal basis of the Temporary Regulation on Internet Culture Management (the Regulation).

What?s the same, there regulates no articles on foreign investment permission either in the Regulation. Therefore, the application of this license shall also refer to the provisions in Catalogue. For the online music industry has been opened to the foreign investors, there are no legal obstacle on applying the license by foreign invested company. Noticeably, by the original Catalogue the change of the license shall be made when modification on the name, business scope and merger or division of the company, while by the latest Catalogue, such change shall extend to the situation like entity structure adjustment, licensed operation scope change. In other words, the introduction of overseas capital by the domestic company demands the approval from the Ministry of Culture; therefore it?s suggested the communication with the administration in advance.

At last, to our knowledge, despite the legal prohibition on the foreign investment into internet culture business in China, the major internet enterprises in the country like SINA (NASDAQ: SINA), NETWASE (NASDAQ: NTES), SOHU (NASDAQ: SOHU), TECENT (HKEX: 0700), SHANDA (NASDAQ: SNDA), ALIBABA (HKSE: 1688) have all listed overseas through the entity of VIE to avoid the legal obstacle. With the change in the catalogue, we estimate there could be new measures by China government for the foreign investment into China internet industry.

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Author: Mr. Luo Yanjie
Attorney-at-law of DeBund Law Offices
Co-author: Mr. You Yunting
Founder & Editor-in-Chief of Bridge IP Law Commentary
Partner & Attorney-at-law of Shanghai DeBund Law Offices
Email:?Bridge@chinaiplawyer.com, Tel: 8621-5213-4900,
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Bridge IP Law Commentary is a website focus on the introduction of commercial laws in China, especially the intellectual property laws. All the posts here are our original works.?And all news or cases referred here are from public reports, and our comments or analysis are of due diligence, neutrality and impartiality, representing our own opinions only and are our original works. You may contact us shall you have any opinions or suggestions.

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