China Permits Foreign Investors to Own up to Half of Each Virtual Private Network Service Provider in Beijing

The municipal government of Beijing has been given the green light from China’s State Council on Monday to allow up to 50% of foreign ownership in virtual private network (VPN) services, widely used by multinational corporations operating in the country to skirt the Great Firewall and connect to overseas servers.

The policy also lifted the foreign investment caps on information services for app stores at the Zhongguancun Science Park, as well as internet connection services in designated pilot zones.

VPN usage is common in large- and medium-sized multinational enterprises or institutions. Employees in branches or outside those branches can access internal systems with a VPN to ensure security and privacy.

In China, it is not allowed to establish or rent special lines (including a VPN) without the approval of the telecommunications authorities. International lines leased by basic telecommunications enterprises are to be used only for their internal office, and cannot be used to connect domestic and overseas data centers to carry out any telecommunications business.

In recent years, China has gradually promoted foreign capital to enter the value-added telecommunications field. The opening-up of VPN services, for its part, is a modification of the 2020 edition of a negative list for foreign investment access, which stipulates that the share of foreign investment in value-added telecommunications services shouldn’t exceed 50%, and basic telecom services must be majority-owned by China.

In September 2020, China announced that it would allow overseas telecom operators to provide VPN services to foreign-funded enterprises in Beijing by setting up joint ventures.

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According to data provided by CAICT, a think-tank under the MIIT, the participation rate of foreign businessmen in the field of value-added telecommunications is increasing. By the end of September 2021, among the value-added telecommunications operators licensed by the MIIT, there were 649 foreign-invested enterprises, accounting for 2.5%, while in January 2020, the proportion was only 0.8%. The most important operators in this field are private holding enterprises, accounting for about 90%, followed by state-owned holding enterprises.