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Regulation of internet content services in China (Ⅱ) By Yang Zhou, PLC 2018-01-29

 

 

 

 
 

The internet content service sector is developing quickly in China with more and more creative service models and pioneering products emerging to encourage and bloom the internet sharing economy. Chinese government has strengthened the regulatory framework for this sector by imposing more restrictions and requirements on market participants, especially for foreign investors.

 

This note provides an overview of the regulatory regime governing various internet content feeding services in China. It sets out the approval and licensing requirements and highlights foreign investment restrictions for engaging in online content feeding services, including for example, internet news, online publishing, online audio-visual programme, internet live-streaming, internet information search, online games and mobile apps services.

 

 
 

6

 

Internet cultural activities

The following regulations apply when cultural activities are broadcasted in China over the internet (including the mobile internet):

 

Interim Provisions on the Administration of Internet Culture 2011 (2011 Internet Culture Provisions).

 

Notice of the Ministry of Culture on the Application of the Administrative Measures for Content Self-review by Internet Culture Business Entities 2013 (2013 Content Self-review Measures).

 

Notice of the Ministry of Culture on Printing and Distributing the Administrative Measures for the Business Activities of Online Performances 2016 (2016 Measures on Online Performance Business Activities).

 

The activities governed by the 2011 Internet Culture Provisions include:

 

Producing, reproducing, importing, publishing or broadcasting internet cultural products.

 

The online acts of publishing cultural products on the internet, or sending cultural products through the internet, mobile communication network and other information networks to terminals such as:

 

computers;

 

fixed telephones;

 

mobile phones;

 

TV sets;

 

game players; and

 

internet bars and other business places of internet service where users can browse, appreciate, use or download content.

Activities such as exhibitions or competitions of internet cultural products.

Activities such as exhibitions or competitions of internet cultural products.

(Article 3.)

 

Online performances also include online commercial performance activities, that is, the provision of online performance products and services to the public in exchange of benefits obtained by means including user fees, e-commerce, advertising, sponsorship and so on (Article 2, 2016 Measures on Online Performance Business Activities).

 

The 2013 Content Self-review Measures impose several obligations on an internet culture operator. For example, the operator should:

 

Review in advance the content of cultural products and services before providing to the public, and ensure that they do not violate Article 16 of the 2011 Internet Culture Provisions, such as endangering the unity of the nation, national sovereignty or territorial integrity, or national security, divulging state secrets, spreading rumors and disturbing the public order and so on (Articles 3-4).

 

Establish an effective content management system that specifies the duties, standards, procedures and accountability of the content review work, and a specialised content management department with specialised personnel responsible for the review work (Article 5).

 

Ensure the content to be reviewed by at least two qualified personnel holding content review certificates issued by the provincial cultural administrative department (Articles 6 and 8).

 

Keep the content review records for at least two years (Article 9).

 

Conduct real-time monitoring of the contents of the products and services that run on its website (platform), take immediately action to stop providing any non-compliant content, keep a record and report the same to the competent provincial cultural administrative department (Article 10).

6.1 Licence for internet cultural activities

An entity undertaking commercial internet cultural activities in China (including commercial online performance activities) must obtain an internet cultural operation licence (网络文化经营许可证) from the competent local office of the MOC (Article 6, 2011 Internet Culture Provisions and Article 4, 2016 Measures on Online Performance Business Activities).The licence is valid for three years and can be renewed at the end of the licence term. The holder is required to submit a renewal application within 30 days before the expiry of the licence (Article 9, 2011 Internet Culture Provisions).

 

After the MOC licence is issued, the service operator must obtain a VATS licence from the central or competent local office of the MIIT, if the service is operating on a commercial basis (Article 11, 2011 Internet Culture Provisions).

 

An entity undertaking non-commercial internet cultural activities in China must make a filing with the competent local office of the MOC within 60 days after its establishment (Article 10, 2011 Internet Culture Provisions).

 

An entity that operates any commercial or non-commercial internet culture business must display in a conspicuous location on its website homepage:

 

The serial number of the MOC licence or filing.

 

The serial number of the ICP licence or filing.

(Article 12, 2011 Internet Culture Provisions.)

6.2 Foreign capital prohibited: internet culture activities

Under Article 3(8) of the Several Opinions of the Ministry of Culture on the Development and Administration of Internet Music 2006 (文化部关于网络音乐发展和管理若干意见), foreign investment in an entity engaging in internet culture businesses is prohibited.

 

China entered into the Agreement on Trade in Services under the Closer Economic Partnership Arrangement (CEPA) with each of Hong Kong and Macau respectively in 2015. Under these arrangements, Hong Kong and Macau service providers are permitted to set up joint ventures (with a Chinese party being the majority stake holder) to engage in internet culture activities provided that they do not provide audio-visual services (Annex 1, Agreement on Trade in Services under CEPA 2015).

 

 
 

7

 

Internet live-streaming

Two sets of regulations govern the provision or use of internet live-streaming (互联网直播) services, including:

 

Administrative Provisions on Internet Live-streaming Services 2016 (2016 Internet Live-streaming Provisions) issued by the CAC. 

 

Notice on Strengthening the Management of Online Audio-visual Programmes through Internet Live-streaming 2016 (关于加强网络视听节目直播服务管理有关问题的通知) (2016 Internet Live-streaming Notice) issued by the SAPPRFT.

 

2016 Internet Live-streaming Provisions define internet live-streaming as the continuous release of real-time information to the public in the form of videos, audios, pictures, texts and other formats through the internet. The provisions regulate the activities of internet live-streaming service providers (that is, platform service providers), and internet live-streaming users, including content publishers and users. (Article 2.)

 

The 2016 Internet Live-streaming Provisions require an internet live-streaming service provider to:

 

Establish a series of systems such as information review, information security management, on-duty inspection, emergency response, and technical support to perform its duties as the party bearing primary responsibilities (Article 7).

 

Establish a live-streaming content review platform (Article 7).

 

Possess the ability to immediately cut off live-streaming services, and conform their related technical solutions to national standards (Article 8).

 

Refrain, along with users, from producing, duplicating and providing prohibited content and engaging in other activities prohibited by law (Article 9).

 

Verify the identity of users and internet live-streaming content publishers in line with the real name registration requirement, submit the information of content publishers to the local office of the CAC for record, and protect the identity information and privacy of users (Article 12).

 

Enter into service agreements with users stating the rights and obligations of both parties and requiring the users to following the law and platform rules (Article 13).

 

Take measures against users in violation of the law and agreement, maintain records of illegal conduct, and report the illegal conduct to the local office of the CAC (Article 14).

 

Establish a credit rating management system for internet live-streaming content publishers and a blacklist management system for users, and file the blacklist to the local office of the CAC (Article 15).

 

Maintain users' published content records and information logs for at least 60 days (Article 16).

 

Establish a public complaints system (Article 19).

The 2016 Internet Live-streaming Provisions also require internet live-streaming content publishers to ensure that the source of news information is traceable and that the content is truthful, accurate, objective, impartial and complete (Article 10).

7.1 Licence for internet live-streaming activities

An internet live-streaming service provider or internet live-streaming content publisher intending to provide internet news information services must obtain an internet news information licence and the services should be provided within the licensed scope (Article 5, 2016 Internet Live-streaming Provisions).

 

If online audio-visual programmes and commercial online performance activities are provided or performed through internet live-streaming, an online audio-visual programme licence and internet cultural operation licence must be obtained accordingly (Article 6, 2016 Internet Live-streaming Provisions and Article 1, 2016 Internet Live-streaming Notice).

 

A service provider should then obtain a VATS licence from the central or competent local office of the MIIT after the above licences are secured.

7.2 Foreign capital prohibited: internet live-streaming activities

Though the provisions do not expressly prohibit foreign investors engaging in live-streaming activities (on a for-profit basis), the regulations governing providers of related services such as internet news information and audio-visual services do expressly prohibit foreign investment.

 

 
 

8

 

Instant messaging public information

The Interim Administrative Provisions on the Development of the Public Information Services via Instant Messaging Tools 2014 (2014 IM Provisions) issued by the CAC govern the provision of public information services via instant messaging tools.

 

Instant messaging tools are internet-based applications that provide end-users with instant information exchange services. Public information services are the activities of releasing information to the public through the public accounts of instant messaging tools and by other means. (Article 2, 2014 IM Provisions.)

 

The 2014 provisions require an instant messaging tools service provider (IM provider) to:

 

Perform information security management duties, establish and improve various systems, and have in place professionals commensurate with its service scale (Article 5).

 

Protect users' information and the privacy of citizens (Article 5).

 

Verify the identity of instant communication tools users in line with the real name registration requirement (Article 6).

 

Enter into service agreements with users (Article 6).

 

Identify the public accounts that may be used to post or repost news on current affairs and politics. Only the public accounts of news entities and news websites may post and repost this type of news, and non-news entities holding an internet news information licence may repost such news via their public accounts. No other public account may post and repost news on current affairs and politics without approval. (Article 7.)

 

Take measure against users in violation of the law and agreement, maintain records of illegal conduct, and report the illegal conduct to the local office of the CAC (Article 8).

8.1 Licence for instant messaging public information service

An IM provider engaging in public information services must obtain:

 

An internet news information licence (Article 4, 2014 IM Provisions).

 

A VATS licence.

8.2 Foreign capital prohibited: instant messaging public information service

Though the provisions do not expressly prohibit foreign capital engaging in instant messaging public information services, the regulations governing providers of related services such as online news information services do expressly prohibit foreign investment.

 

 
 

9

 

Internet information search

The Provisions on the Administration of Internet Search Services 2016 (2016 Internet Search Provisions) issued by the CAC govern internet search services and the delivery of these services in China. This includes the use of computer technology to gather and process all kinds of information from the internet and provide indexing to users (Article 2, 2016 Internet Search Provisions).

 

The 2016 Internet Search Provisions require internet search service providers (including search engines and social media providers) to:

 

Establish systems to ensure information security, including information reviews, real time inspections, data privacy protections and emergency response mechanisms sufficient to provide technical assistance to government regulators in policing the search industry.

 

Provide objective, just and authoritative search results that do not contain subversive or obscene content or otherwise harm the national interest, public interest or the lawful rights and interests of citizens, legal persons and other organisations.

 

Confirm user credentials, to clearly distinguish between paid and normal search services, and to place a conspicuous marker next to each paid search item.

 

Establish a user complaints system, place it in a conspicuous location, promptly respond to complaints, and bear liability for damages to user interests.

(Articles 6 and 10-12, 2016 Internet Search Provisions.)

 

Search service providers are prohibited from providing links, summaries, snap shots, associated words, related searches or recommendations that run counter to the laws and regulations on internet content (Article 7, 2016 Internet Search Provisions). Where a provider discovers search results that obviously contain information, websites or applications that violate the law it must stop providing the search results, maintain relevant records and report the incident to the central or competent local office of the CAC (Article 8, 2016 Internet Search Provisions).

 

For those search service providers with commercial advertising information services, they must comply with the Advertising Law of the People's Republic of China 2015 and Interim Measures for the Administration of Internet Advertisements 2016.

9.1 Licence for internet information search service

In line with other VATS, an entity engaging in the internet information search business must obtain a VATS licence from the central or competent local office of the MIIT (Article 5, 2016 Internet Search Provisions).

9.2 Foreign shareholding cap: internet information search service

Same as other VATS, the foreign shareholding ratio cannot exceed 50% in this type of service.

 

 
 

10

 

 Online games

The Interim Measures on Online Games 2010 (2010 Online Games Measures) issued by the MOC are the first legislation in China to govern the online games business sector.

 

The term "online games" means products or services that consist of software programme and information data, provided over the internet or mobile network. These include web games and mobile games.

 

The 2010 Online Games Measures apply to the following activities:

 

Research and development (R&D) and production of online games. 

 

Operation of online games.

 

Issuance of online virtual currency.

 

Trading services in connection with online virtual currency.

(Article 2, 2010 Online Games Measures.)

 

Foreign-produced online games are subject to a more complex approval regime while domestically-produced games are only required to be filed with the MOC (Articles 11-13, 2010 Online Games Measures).

 

10.1 Licence for online games

The online games sector is governed by a number of regulators with overlapping jurisdictional powers, including:

 

Central or competent local office of the MIIT. They are responsible for issuing a VATS licence in connection with the online games service.

 

Central or competent local office of the MOC. They are responsible for monitoring online games and examining online game contents, except for approving the publication of mobile games (Articles 3 and 10, 2010 Online Games Measures).

 

Central or competent local office of the SAPPRFT. They are responsible for approving the publication of the mobile games.

 

Central or competent local office of the CAC. They are responsible for regulating mobile internet apps including mobile games.

 

A service operator engaging in providing online games must obtain:

 

An internet cultural operation licence from the central or competent local office of the MOC for the operation of the online games.

 

An online publishing service licence from the SAPPRFT for the publication of the online games.

 

A VATS licence from the central or competent local office of the MIIT after the above licences are secured.

According to the amendments issued by the MOC on 15 December 2017, the minimum registered capital of RMB10 million is no longer required for online games operators to secure an internet cultural operation licence. This would be a welcome change to some small or medium-sized entities in the market.

10.2 Foreign investment restrictions: online games

Entities engaging in the online games businesses usually adopt one of the following business models:

 

Engaging in online games production only (production only model).

 

Engaging in online games operation only (operation only model).

 

Engaging in both online games production and operation (dual model).

For businesses purely engaged in producing online games without providing any information to online users over internet (that is, the production only model), there is no restriction on foreign investment. A French multinational video game developer has established WFOEs in China to cover design, development and production of computer and online games.

 

However, foreign investments in the operation only model or dual model are prohibited. This is in line with the restrictions on internet cultural activities and online publishing services.

 

In addition, the SAPPRFT, National Copyright Administration (NCA) and other government offices jointly issued a notice in 2009 to prohibit foreign investors from providing online game operation services in China through:

 

A WFOE, joint venture, co-operation or other forms.

 

Any contractual arrangement or technical support by a joint venture or other indirect ways in order to control or participate in a domestic company's online game operation businesses.

The notice specifically prohibits a VIE structure in the online game sector. However, the notice is of the nature of department rules rather than laws and administrative regulations. Therefore, courts may not directly rely on this notice to render a VIE arrangement for the games industry void according to the Contract Law of the People's Republic of China 1999.

 

(Article 4, Notice on Fully Implementing the State Council's "Three" Rules and the Interpretation by State Commission Office for Public Sector Reform and further Strengthening Administration of Prior Review and Approval of Online Games and Review and Approval of Imported Online Games 2009) (关于贯彻落实国务院《“三定”规定》和中央编办有关解释,进一步加强网络游戏前置审批和进口网络游戏审批管理的通知).

 

 
 

11

 

 Mobile games publication

The Notice of the General Office of the State Administration of Press, Publication, Radio, Film and Television on the Administration of Mobile Games Publication Services 2016 (2016 Mobile Game Notice) issued by the SAPPRFT governs mobile games publication. It is the first set of administrative rules to enable the implementation of the 2016 Online Publication Provisions.

 

The term "mobile games" includes all games that are downloaded or used by the public on mobile phones and other mobile intelligent terminals through an information network (Article 1, 2016 Mobile Game Notice).

 

A "mobile game publishing service entity" means an online publishing service operator that obtains a network publishing service licence from the SAPPRFT to cover games publishing in its business scope. The service operator is responsible for reviewing the mobile game content, carrying out the publication reporting and applying for a publication number for the games (Articles 1-2, 2016 Mobile Game Notice).

 

Mobile games that meet all of the following criteria may carry out a simplified approval procedure:

 

A domestic entity or individual holds the game copyright. 

 

The game does not involve sensitive subjects such as politics, the military, ethnicity or religion.

 

The game has no plot or has only a simple story line.

 

The game is of a casual genre.

(Article 3, 2016 Mobile Game Notice.)

 

For the simplified approval procedure: 

 

The mobile game publishing entity only needs to submit a standard application form to the provincial office of the SAPPRFT at least 20 working days before the contemplated launch date of the games.

 

The entire approval process can be completed within around 18 working days if all required information is duly provided at the outset. 

(Article 3, 2016 Mobile Game Notice.)

 

Foreign-owned mobile games and domestically-held games that do not meet the above criteria are subject to a more complex approval regime (Articles 4-5, 2016 Mobile Game Notice). The required information is more complicated and the SAPPRFT sets no timeline for completing the review process.

 

The mobile games publishing entity must start a new application procedure for each version of the mobile games, including updates and spin-offs, and must carry out an amendment procedure if there is any change to the game publisher, the main operating entity or the name of the game (Articles 6-7, 2016 Mobile Game Notice).

 

From 1 July 2016, mobile games publishers can only publish mobile games in China after securing a launch approval from the SAPPRFT (Articles 13-14, 2016 Mobile Game Notice.)

11.1 Licence for mobile games publication

In addition to the SAPPRFT launch approval, the mobile game publisher must obtain:

 

An internet cultural operation licence from the competent local office of the MOC.

 

An online publishing services licence from the central or competent local office of the SAPPRFT (Article 27, 2016 Online Publication Provisions).

 

A VATS licence from the central or competent local office of the MIIT.

11.2 Foreign capital prohibited: mobile games publication

In line with the restrictions on internet cultural activities and online publishing services, foreign investment into this type of business is prohibited.

 

 
 

12

 

Mobile internet apps

The Administrative Provisions on Information Services of Mobile Internet Application Programmes 2016 (2016 Mobile App Provisions) issued by the CAC are the first set of rules to govern mobile internet application (mobile app) services.

 

Mobile apps are defined as application software obtained by pre-installation or downloading, and used in mobile smart terminals to provide users with information services. The 2016 Mobile App Provisions regulate two types of service providers:

 

Mobile app providers. They are the owners or operators of mobile apps that provide information services.

 

Mobile app stores operators. They are the operators of platforms providing services for browsing, searching and downloading application software, and publishing development tools and products over the internet.

(Article 2, 2016 Mobile App Provisions.)

 

Mobile app providers must:

 

Verify the identity and contact information of mobile app users in line with the real name registration requirement.

 

Establish and improve the user information security protection mechanism and information content audit and management mechanism.

 

Adhere to the principles of legality, propriety and necessity, and obtain the user's consent when collecting and processing personal data.

 

Take measures against users in violation of the law and agreement, maintain records of illegal conduct, and report the illegal conduct to the local office of the CAC.

 

Refrain from accessing the location, address book, camera, audio recording or other functions unrelated to the application without the user’s consent.

 

Protect intellectual property rights.

 

Record user logs and keep them for at least 60 days.

(Article 7, 2016 Mobile App Provisions.)

 

Mobile app store operators must:

 

Make a filing with the provincial-level CAC offices within 30 days after starting business.

 

Ensure that user information is protected by app providers, and that any published apps and their content comply with law.

 

Enter into service agreements with mobile app providers stating the rights and obligations of both parties.

(Articles 5 and 8-9, 2016 Mobile App Provisions.)

 

12.1 Licence for mobile app service

Depending on the nature and type of content provided in a particular mobile app, the service provider may need different licences from the respective regulatory agencies. For example, a news service app provider should obtain an internet news information licence.

 

According to the 2000 Internet Information Services Measures, a relevant VATS licence is required for the app when engaging in commercial internet information services. Therefore, whether a mobile app provider needs to obtain a VATS licence depends on whether it is engaging in an activity falling into the scope of VATS.

 

As far as app stores are concerned, according to the Notice on Commencement of Record-filing of Mobile App Stores 2017 (关于开展互联网应用商店备案工作的通知) subsequently issued by the CAC in January 2017, all provincial CAC offices will officially commence the record-filing work for mobile app stores from 16 January 2017. The materials for the record-filing generally include:

 

Application form.

 

Operator's individual identity card, or company business licence (including certificate of identity for the legal representative).

 

Domain name certificate.

 

Service agreement template between the app store and an app provider, including security undertakings to be provided by the app provider and platform operation rules.

In addition to the filing with the CAC, app stores operated for commercial may be subject to ICP licensing, which is usually the case in practice. According to Article 2 of the Opinions of the Ministry of Industry and Information Technology and the Shanghai Municipal People's Government on Further Liberalizing Value-added Telecommunications Services within the China (Shanghai) Pilot Free Trade Zone 2014, apps stores services are categorised as information services. According to the 2000 Internet Information Services Measures, a relevant VATS licence is required for an app store when engaging in commercial internet information services.

12.2 Foreign shareholding cap: mobile internet apps

In line with other VATS, the foreign shareholding ratio cannot exceed 50% in this type of business. However, there is no foreign shareholding cap for app store operation services registered in the China (Shanghai) Pilot Free Trade Zone (Shanghai FTZ).

 

Under each CEPA Trade in Services Agreement, qualified Hong Kong and Macau service providers are allowed to set up an FIE to provide information services (restricted to app stores only) within China.

 

Where a mobile app provider simultaneously engages in the mobile games operation and publication business, foreign investment will be prohibited. 

This content of this practice note was first published on Practical Law China with the title of “Regulation of internet content services in China” and is published with permission by Thomson Reuters.

 

 

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The internet content service sector is developing quickly in China with more and more creative service models and pioneering products emerging to encourage and bloom the internet sharing economy. Chinese government has strengthened the regulatory framework for this sector by imposing more restrictions and requirements on market participants, especially for foreign investors.

 

This note provides an overview of the regulatory regime governing various internet content feeding services in China. It sets out the approval and licensing requirements and highlights foreign investment restrictions for engaging in online content feeding services, including for example, internet news, online publishing, online audio-visual programme, internet live-streaming, internet information search, online games and mobile apps services.

 

Regulation of internet content services in China(Ⅰ)

 
 

6

 

Internet cultural activities

The following regulations apply when cultural activities are broadcasted in China over the internet (including the mobile internet):

 

Interim Provisions on the Administration of Internet Culture 2011 (2011 Internet Culture Provisions).

 

Notice of the Ministry of Culture on the Application of the Administrative Measures for Content Self-review by Internet Culture Business Entities 2013 (2013 Content Self-review Measures).

 

Notice of the Ministry of Culture on Printing and Distributing the Administrative Measures for the Business Activities of Online Performances 2016 (2016 Measures on Online Performance Business Activities).

 

The activities governed by the 2011 Internet Culture Provisions include:

 

Producing, reproducing, importing, publishing or broadcasting internet cultural products.

 

The online acts of publishing cultural products on the internet, or sending cultural products through the internet, mobile communication network and other information networks to terminals such as:

 

computers;

 

fixed telephones;

 

mobile phones;

 

TV sets;

 

game players; and

 

internet bars and other business places of internet service where users can browse, appreciate, use or download content.

Activities such as exhibitions or competitions of internet cultural products.

Activities such as exhibitions or competitions of internet cultural products.

(Article 3.)

 

Online performances also include online commercial performance activities, that is, the provision of online performance products and services to the public in exchange of benefits obtained by means including user fees, e-commerce, advertising, sponsorship and so on (Article 2, 2016 Measures on Online Performance Business Activities).

 

The 2013 Content Self-review Measures impose several obligations on an internet culture operator. For example, the operator should:

 

Review in advance the content of cultural products and services before providing to the public, and ensure that they do not violate Article 16 of the 2011 Internet Culture Provisions, such as endangering the unity of the nation, national sovereignty or territorial integrity, or national security, divulging state secrets, spreading rumors and disturbing the public order and so on (Articles 3-4).

 

Establish an effective content management system that specifies the duties, standards, procedures and accountability of the content review work, and a specialised content management department with specialised personnel responsible for the review work (Article 5).

 

Ensure the content to be reviewed by at least two qualified personnel holding content review certificates issued by the provincial cultural administrative department (Articles 6 and 8).

 

Keep the content review records for at least two years (Article 9).

 

Conduct real-time monitoring of the contents of the products and services that run on its website (platform), take immediately action to stop providing any non-compliant content, keep a record and report the same to the competent provincial cultural administrative department (Article 10).

6.1 Licence for internet cultural activities

An entity undertaking commercial internet cultural activities in China (including commercial online performance activities) must obtain an internet cultural operation licence (网络文化经营许可证) from the competent local office of the MOC (Article 6, 2011 Internet Culture Provisions and Article 4, 2016 Measures on Online Performance Business Activities).The licence is valid for three years and can be renewed at the end of the licence term. The holder is required to submit a renewal application within 30 days before the expiry of the licence (Article 9, 2011 Internet Culture Provisions).

 

After the MOC licence is issued, the service operator must obtain a VATS licence from the central or competent local office of the MIIT, if the service is operating on a commercial basis (Article 11, 2011 Internet Culture Provisions).

 

An entity undertaking non-commercial internet cultural activities in China must make a filing with the competent local office of the MOC within 60 days after its establishment (Article 10, 2011 Internet Culture Provisions).

 

An entity that operates any commercial or non-commercial internet culture business must display in a conspicuous location on its website homepage:

 

The serial number of the MOC licence or filing.

 

The serial number of the ICP licence or filing.

(Article 12, 2011 Internet Culture Provisions.)

6.2 Foreign capital prohibited: internet culture activities

Under Article 3(8) of the Several Opinions of the Ministry of Culture on the Development and Administration of Internet Music 2006 (文化部关于网络音乐发展和管理若干意见), foreign investment in an entity engaging in internet culture businesses is prohibited.

 

China entered into the Agreement on Trade in Services under the Closer Economic Partnership Arrangement (CEPA) with each of Hong Kong and Macau respectively in 2015. Under these arrangements, Hong Kong and Macau service providers are permitted to set up joint ventures (with a Chinese party being the majority stake holder) to engage in internet culture activities provided that they do not provide audio-visual services (Annex 1, Agreement on Trade in Services under CEPA 2015).

 

 
 

7

 

Internet live-streaming

Two sets of regulations govern the provision or use of internet live-streaming (互联网直播) services, including:

 

Administrative Provisions on Internet Live-streaming Services 2016 (2016 Internet Live-streaming Provisions) issued by the CAC. 

 

Notice on Strengthening the Management of Online Audio-visual Programmes through Internet Live-streaming 2016 (关于加强网络视听节目直播服务管理有关问题的通知) (2016 Internet Live-streaming Notice) issued by the SAPPRFT.

 

2016 Internet Live-streaming Provisions define internet live-streaming as the continuous release of real-time information to the public in the form of videos, audios, pictures, texts and other formats through the internet. The provisions regulate the activities of internet live-streaming service providers (that is, platform service providers), and internet live-streaming users, including content publishers and users. (Article 2.)

 

The 2016 Internet Live-streaming Provisions require an internet live-streaming service provider to:

 

Establish a series of systems such as information review, information security management, on-duty inspection, emergency response, and technical support to perform its duties as the party bearing primary responsibilities (Article 7).

 

Establish a live-streaming content review platform (Article 7).

 

Possess the ability to immediately cut off live-streaming services, and conform their related technical solutions to national standards (Article 8).

 

Refrain, along with users, from producing, duplicating and providing prohibited content and engaging in other activities prohibited by law (Article 9).

 

Verify the identity of users and internet live-streaming content publishers in line with the real name registration requirement, submit the information of content publishers to the local office of the CAC for record, and protect the identity information and privacy of users (Article 12).

 

Enter into service agreements with users stating the rights and obligations of both parties and requiring the users to following the law and platform rules (Article 13).

 

Take measures against users in violation of the law and agreement, maintain records of illegal conduct, and report the illegal conduct to the local office of the CAC (Article 14).

 

Establish a credit rating management system for internet live-streaming content publishers and a blacklist management system for users, and file the blacklist to the local office of the CAC (Article 15).

 

Maintain users' published content records and information logs for at least 60 days (Article 16).

 

Establish a public complaints system (Article 19).

The 2016 Internet Live-streaming Provisions also require internet live-streaming content publishers to ensure that the source of news information is traceable and that the content is truthful, accurate, objective, impartial and complete (Article 10).

7.1 Licence for internet live-streaming activities

An internet live-streaming service provider or internet live-streaming content publisher intending to provide internet news information services must obtain an internet news information licence and the services should be provided within the licensed scope (Article 5, 2016 Internet Live-streaming Provisions).

 

If online audio-visual programmes and commercial online performance activities are provided or performed through internet live-streaming, an online audio-visual programme licence and internet cultural operation licence must be obtained accordingly (Article 6, 2016 Internet Live-streaming Provisions and Article 1, 2016 Internet Live-streaming Notice).

 

A service provider should then obtain a VATS licence from the central or competent local office of the MIIT after the above licences are secured.

7.2 Foreign capital prohibited: internet live-streaming activities

Though the provisions do not expressly prohibit foreign investors engaging in live-streaming activities (on a for-profit basis), the regulations governing providers of related services such as internet news information and audio-visual services do expressly prohibit foreign investment.

 

 
 

8

 

Instant messaging public information

The Interim Administrative Provisions on the Development of the Public Information Services via Instant Messaging Tools 2014 (2014 IM Provisions) issued by the CAC govern the provision of public information services via instant messaging tools.

 

Instant messaging tools are internet-based applications that provide end-users with instant information exchange services. Public information services are the activities of releasing information to the public through the public accounts of instant messaging tools and by other means. (Article 2, 2014 IM Provisions.)

 

The 2014 provisions require an instant messaging tools service provider (IM provider) to:

 

Perform information security management duties, establish and improve various systems, and have in place professionals commensurate with its service scale (Article 5).

 

Protect users' information and the privacy of citizens (Article 5).

 

Verify the identity of instant communication tools users in line with the real name registration requirement (Article 6).

 

Enter into service agreements with users (Article 6).

 

Identify the public accounts that may be used to post or repost news on current affairs and politics. Only the public accounts of news entities and news websites may post and repost this type of news, and non-news entities holding an internet news information licence may repost such news via their public accounts. No other public account may post and repost news on current affairs and politics without approval. (Article 7.)

 

Take measure against users in violation of the law and agreement, maintain records of illegal conduct, and report the illegal conduct to the local office of the CAC (Article 8).

8.1 Licence for instant messaging public information service

An IM provider engaging in public information services must obtain:

 

An internet news information licence (Article 4, 2014 IM Provisions).

 

A VATS licence.

8.2 Foreign capital prohibited: instant messaging public information service

Though the provisions do not expressly prohibit foreign capital engaging in instant messaging public information services, the regulations governing providers of related services such as online news information services do expressly prohibit foreign investment.

 

 
 

9

 

Internet information search

The Provisions on the Administration of Internet Search Services 2016 (2016 Internet Search Provisions) issued by the CAC govern internet search services and the delivery of these services in China. This includes the use of computer technology to gather and process all kinds of information from the internet and provide indexing to users (Article 2, 2016 Internet Search Provisions).

 

The 2016 Internet Search Provisions require internet search service providers (including search engines and social media providers) to:

 

Establish systems to ensure information security, including information reviews, real time inspections, data privacy protections and emergency response mechanisms sufficient to provide technical assistance to government regulators in policing the search industry.

 

Provide objective, just and authoritative search results that do not contain subversive or obscene content or otherwise harm the national interest, public interest or the lawful rights and interests of citizens, legal persons and other organisations.

 

Confirm user credentials, to clearly distinguish between paid and normal search services, and to place a conspicuous marker next to each paid search item.

 

Establish a user complaints system, place it in a conspicuous location, promptly respond to complaints, and bear liability for damages to user interests.

(Articles 6 and 10-12, 2016 Internet Search Provisions.)

 

Search service providers are prohibited from providing links, summaries, snap shots, associated words, related searches or recommendations that run counter to the laws and regulations on internet content (Article 7, 2016 Internet Search Provisions). Where a provider discovers search results that obviously contain information, websites or applications that violate the law it must stop providing the search results, maintain relevant records and report the incident to the central or competent local office of the CAC (Article 8, 2016 Internet Search Provisions).

 

For those search service providers with commercial advertising information services, they must comply with the Advertising Law of the People's Republic of China 2015 and Interim Measures for the Administration of Internet Advertisements 2016.

9.1 Licence for internet information search service

In line with other VATS, an entity engaging in the internet information search business must obtain a VATS licence from the central or competent local office of the MIIT (Article 5, 2016 Internet Search Provisions).

9.2 Foreign shareholding cap: internet information search service

Same as other VATS, the foreign shareholding ratio cannot exceed 50% in this type of service.

 

 
 

10

 

 Online games

The Interim Measures on Online Games 2010 (2010 Online Games Measures) issued by the MOC are the first legislation in China to govern the online games business sector.

 

The term "online games" means products or services that consist of software programme and information data, provided over the internet or mobile network. These include web games and mobile games.

 

The 2010 Online Games Measures apply to the following activities:

 

Research and development (R&D) and production of online games. 

 

Operation of online games.

 

Issuance of online virtual currency.

 

Trading services in connection with online virtual currency.

(Article 2, 2010 Online Games Measures.)

 

Foreign-produced online games are subject to a more complex approval regime while domestically-produced games are only required to be filed with the MOC (Articles 11-13, 2010 Online Games Measures).

 

10.1 Licence for online games

The online games sector is governed by a number of regulators with overlapping jurisdictional powers, including:

 

Central or competent local office of the MIIT. They are responsible for issuing a VATS licence in connection with the online games service.

 

Central or competent local office of the MOC. They are responsible for monitoring online games and examining online game contents, except for approving the publication of mobile games (Articles 3 and 10, 2010 Online Games Measures).

 

Central or competent local office of the SAPPRFT. They are responsible for approving the publication of the mobile games.

 

Central or competent local office of the CAC. They are responsible for regulating mobile internet apps including mobile games.

 

A service operator engaging in providing online games must obtain:

 

An internet cultural operation licence from the central or competent local office of the MOC for the operation of the online games.

 

An online publishing service licence from the SAPPRFT for the publication of the online games.

 

A VATS licence from the central or competent local office of the MIIT after the above licences are secured.

According to the amendments issued by the MOC on 15 December 2017, the minimum registered capital of RMB10 million is no longer required for online games operators to secure an internet cultural operation licence. This would be a welcome change to some small or medium-sized entities in the market.

10.2 Foreign investment restrictions: online games

Entities engaging in the online games businesses usually adopt one of the following business models:

 

Engaging in online games production only (production only model).

 

Engaging in online games operation only (operation only model).

 

Engaging in both online games production and operation (dual model).

For businesses purely engaged in producing online games without providing any information to online users over internet (that is, the production only model), there is no restriction on foreign investment. A French multinational video game developer has established WFOEs in China to cover design, development and production of computer and online games.

 

However, foreign investments in the operation only model or dual model are prohibited. This is in line with the restrictions on internet cultural activities and online publishing services.

 

In addition, the SAPPRFT, National Copyright Administration (NCA) and other government offices jointly issued a notice in 2009 to prohibit foreign investors from providing online game operation services in China through:

 

A WFOE, joint venture, co-operation or other forms.

 

Any contractual arrangement or technical support by a joint venture or other indirect ways in order to control or participate in a domestic company's online game operation businesses.

The notice specifically prohibits a VIE structure in the online game sector. However, the notice is of the nature of department rules rather than laws and administrative regulations. Therefore, courts may not directly rely on this notice to render a VIE arrangement for the games industry void according to the Contract Law of the People's Republic of China 1999.

 

(Article 4, Notice on Fully Implementing the State Council's "Three" Rules and the Interpretation by State Commission Office for Public Sector Reform and further Strengthening Administration of Prior Review and Approval of Online Games and Review and Approval of Imported Online Games 2009) (关于贯彻落实国务院《“三定”规定》和中央编办有关解释,进一步加强网络游戏前置审批和进口网络游戏审批管理的通知).

 

 
 

11

 

 Mobile games publication

The Notice of the General Office of the State Administration of Press, Publication, Radio, Film and Television on the Administration of Mobile Games Publication Services 2016 (2016 Mobile Game Notice) issued by the SAPPRFT governs mobile games publication. It is the first set of administrative rules to enable the implementation of the 2016 Online Publication Provisions.

 

The term "mobile games" includes all games that are downloaded or used by the public on mobile phones and other mobile intelligent terminals through an information network (Article 1, 2016 Mobile Game Notice).

 

A "mobile game publishing service entity" means an online publishing service operator that obtains a network publishing service licence from the SAPPRFT to cover games publishing in its business scope. The service operator is responsible for reviewing the mobile game content, carrying out the publication reporting and applying for a publication number for the games (Articles 1-2, 2016 Mobile Game Notice).

 

Mobile games that meet all of the following criteria may carry out a simplified approval procedure:

 

A domestic entity or individual holds the game copyright. 

 

The game does not involve sensitive subjects such as politics, the military, ethnicity or religion.

 

The game has no plot or has only a simple story line.

 

The game is of a casual genre.

(Article 3, 2016 Mobile Game Notice.)

 

For the simplified approval procedure: 

 

The mobile game publishing entity only needs to submit a standard application form to the provincial office of the SAPPRFT at least 20 working days before the contemplated launch date of the games.

 

The entire approval process can be completed within around 18 working days if all required information is duly provided at the outset. 

(Article 3, 2016 Mobile Game Notice.)

 

Foreign-owned mobile games and domestically-held games that do not meet the above criteria are subject to a more complex approval regime (Articles 4-5, 2016 Mobile Game Notice). The required information is more complicated and the SAPPRFT sets no timeline for completing the review process.

 

The mobile games publishing entity must start a new application procedure for each version of the mobile games, including updates and spin-offs, and must carry out an amendment procedure if there is any change to the game publisher, the main operating entity or the name of the game (Articles 6-7, 2016 Mobile Game Notice).

 

From 1 July 2016, mobile games publishers can only publish mobile games in China after securing a launch approval from the SAPPRFT (Articles 13-14, 2016 Mobile Game Notice.)

11.1 Licence for mobile games publication

In addition to the SAPPRFT launch approval, the mobile game publisher must obtain:

 

An internet cultural operation licence from the competent local office of the MOC.

 

An online publishing services licence from the central or competent local office of the SAPPRFT (Article 27, 2016 Online Publication Provisions).

 

A VATS licence from the central or competent local office of the MIIT.

11.2 Foreign capital prohibited: mobile games publication

In line with the restrictions on internet cultural activities and online publishing services, foreign investment into this type of business is prohibited.

 

 
 

12

 

Mobile internet apps

The Administrative Provisions on Information Services of Mobile Internet Application Programmes 2016 (2016 Mobile App Provisions) issued by the CAC are the first set of rules to govern mobile internet application (mobile app) services.

 

Mobile apps are defined as application software obtained by pre-installation or downloading, and used in mobile smart terminals to provide users with information services. The 2016 Mobile App Provisions regulate two types of service providers:

 

Mobile app providers. They are the owners or operators of mobile apps that provide information services.

 

Mobile app stores operators. They are the operators of platforms providing services for browsing, searching and downloading application software, and publishing development tools and products over the internet.

(Article 2, 2016 Mobile App Provisions.)

 

Mobile app providers must:

 

Verify the identity and contact information of mobile app users in line with the real name registration requirement.

 

Establish and improve the user information security protection mechanism and information content audit and management mechanism.

 

Adhere to the principles of legality, propriety and necessity, and obtain the user's consent when collecting and processing personal data.

 

Take measures against users in violation of the law and agreement, maintain records of illegal conduct, and report the illegal conduct to the local office of the CAC.

 

Refrain from accessing the location, address book, camera, audio recording or other functions unrelated to the application without the user’s consent.

 

Protect intellectual property rights.

 

Record user logs and keep them for at least 60 days.

(Article 7, 2016 Mobile App Provisions.)

 

Mobile app store operators must:

 

Make a filing with the provincial-level CAC offices within 30 days after starting business.

 

Ensure that user information is protected by app providers, and that any published apps and their content comply with law.

 

Enter into service agreements with mobile app providers stating the rights and obligations of both parties.

(Articles 5 and 8-9, 2016 Mobile App Provisions.)

 

12.1 Licence for mobile app service

Depending on the nature and type of content provided in a particular mobile app, the service provider may need different licences from the respective regulatory agencies. For example, a news service app provider should obtain an internet news information licence.

 

According to the 2000 Internet Information Services Measures, a relevant VATS licence is required for the app when engaging in commercial internet information services. Therefore, whether a mobile app provider needs to obtain a VATS licence depends on whether it is engaging in an activity falling into the scope of VATS.

 

As far as app stores are concerned, according to the Notice on Commencement of Record-filing of Mobile App Stores 2017 (关于开展互联网应用商店备案工作的通知) subsequently issued by the CAC in January 2017, all provincial CAC offices will officially commence the record-filing work for mobile app stores from 16 January 2017. The materials for the record-filing generally include:

 

Application form.

 

Operator's individual identity card, or company business licence (including certificate of identity for the legal representative).

 

Domain name certificate.

 

Service agreement template between the app store and an app provider, including security undertakings to be provided by the app provider and platform operation rules.

In addition to the filing with the CAC, app stores operated for commercial may be subject to ICP licensing, which is usually the case in practice. According to Article 2 of the Opinions of the Ministry of Industry and Information Technology and the Shanghai Municipal People's Government on Further Liberalizing Value-added Telecommunications Services within the China (Shanghai) Pilot Free Trade Zone 2014, apps stores services are categorised as information services. According to the 2000 Internet Information Services Measures, a relevant VATS licence is required for an app store when engaging in commercial internet information services.

12.2 Foreign shareholding cap: mobile internet apps

In line with other VATS, the foreign shareholding ratio cannot exceed 50% in this type of business. However, there is no foreign shareholding cap for app store operation services registered in the China (Shanghai) Pilot Free Trade Zone (Shanghai FTZ).

 

Under each CEPA Trade in Services Agreement, qualified Hong Kong and Macau service providers are allowed to set up an FIE to provide information services (restricted to app stores only) within China.

 

Where a mobile app provider simultaneously engages in the mobile games operation and publication business, foreign investment will be prohibited. 

This content of this practice note was first published on Practical Law China with the title of “Regulation of internet content services in China” and is published with permission by Thomson Reuters.

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