AustCham: Hello everyone! Thank you for joining us today. I’m here with Sabrina Zhang, the regional partner of Dezan Shira & Associates. Dezan Shira offers a large foray of business consulting and assistance, today we will focus on E-commerce in China.
Sabrina: Hi everyone, it’s good to be here! E-commerce, by definition is the trading or facilitation of trading in products or services using computer networks and China is currently experiencing huge growth in its e-commerce industry. With the largest population of online shoppers in the world, China is becoming one of the most attractive markets for e-commerce operators.
AustCham: So what is e-commerce in China?
− In China, we have a very specific scope for e-commerce legally speaking
− If you want to do business in the e-commerce industry, you need to acquire special approvals and meet specific requirements
− E-commerce is strictly regulated by Ministry of Industry and Information Technology (MIIT) in China
− Classified by two different categories, and the most common sub-categories “On-line Data Processing and Transaction Processing Services” and “information Service”, which I’ll explain below
− “On-line data and transaction processing services include transaction processing, electronic data interchange and network/electronic equipment data processing services, all of which require a “value added telecommunication permit”
− Internet Information services refer to voice services or on-line information and data retrieval services provided directly for end users
− Non-commercial internet information services refer to non-compensatory services which supply, through the Internet, to online users information which is open to and shared by the general public, which require “ICP license” or “ICP filing”;
− In June 2015, MIIT released a circular which implied, MIIT didn’t state that, “on-line data processing and transaction processing business is “for-profit E-commerce”, and for foreign invested enterprise (FIE) specifically issued to the online data and transaction processing (limited to profitable e-commerce) business needs to obtain a VATS permit, which is issued by MIIT at the ministry level
AustCham: I see, a much more complex approval process than initial realized I think. So for online trading operators, should they get the ICP license or the VATS permit or both?
Sabrina: It is certainly a lot to digest, and we spend a considerable amount of time walking some of our clients through these processes. This is always a concern to investors and at the moment we are not able to give you a precise answer as it’s still in the transition period. However I have heard that some operators have received both approvals.
AustCham: Interesting. I also see “ICP filing” (ICP bei in Chinese), could you explain this filing for us as well?
− ICP filing is required if a company is selling its own products on-line. A very notable example is Zara. Zara sells their products in-store and online on their official websites: www.zara.cn.
− When the company business scope contains “retail”, the company needs to apply to set up a physical store or a showroom where it can promote and sell its products. This requires an ICP filing (ICP 备), rather than ICP licensing.
AustCham: When you say Companies are selling their own products online, are there any special procedures in terms of incorporation if investors only sells their own products online?
− Investors may establish a company in China whose business scope covers retail business. - -
− Foreign investors must first register a Foreign Invested Commercial Enterprise (FICE) and once established the FICE may apply to setup a physical store. After that, investors need to register a website and complete the ICP filing procedure we discussed earlier.
− According to the Measures, FIEs seeking to provide services to other trading parties with its own online platform need to apply for an ICP license.
− FIEs that are solely engaging in online sales of their own products without providing internet services are treated as non-commercial internet information service providers. For these FIEs, an ICP license is not required, but you probably see an ICP filing (“ICP备”) a lot on Chinese websites, which is a basic requirement.
AustCham: There have been significant changes to the e-commerce business sector the past year in 2015, could you briefly summarize on that?
− As a general trend, the Chinese government is willing to open up the e-commerce market and further open up China’s economy to the world.
AustCham: Good news indeed. More developments in 2016 are coming up, you think?
- Absolutely. MIIT re-adjusted the “Classified Catalogue of Telecommunications Services" recently which will go into effect in March this year. In the long term, one of China’s current economic development goals is to promote domestic consumption, and e-commerce will play a significant role in this growth. The Chinese government has gradually released various policies and documents and is gradually relaxing restrictions on the e-commerce industry here.
AustCham: Great, well thank you very, Sabrina, and it was a pleasure speaking with you today. For more information on regulatory changes on e-commerce, you can visit asiabriefing.com for a host of articles, magazines, and guides on this topic and more.