China Opens Up Foreign Investment In E-Commerce

Law360, New York (June 19, 2015, 5:05 PM ET) -- China lifted prohibitions on foreign investment in its e-commerce industry today, opening the door for fully foreign-owned technology companies to enter its online business market. 
The Ministry of Industry and Information Technology announced the move opening up foreign investment in “online data handling and online transaction processing businesses” in Circular 196, which it posted on its website today, saying it went into effect immediately upon publication.

The announcement said China planned to conduct a pilot project in its Shanghai free trade zone to test lifting foreign equity restrictions on the country’s e-commerce businesses, “In order to implement the party's eighth plenary meeting spirit, support the development of Chinese electronic commerce, encourage and guide the active participation of foreign investment and further stimulate dynamic market competition.”

It explained that interested investors would have to go through the approval process outlined in State Council Decree No. 534, establishing "foreign-invested telecommunications business regulations" and comply with other related laws.

This development comes less than a month after China’s cabinet established policies to nurture e-commerce growth, promising to minimize bureaucratic hassles, ease market access and lower taxes for the sector. In the State Council’s announcement of that move, it also called on authorities to lift the current limit on foreign investors’ share in Chinese-foreign e-commerce companies and encourage domestic e-commerce companies to invest resources abroad.

China’s thriving e-commerce industry is thirsty for investment, with its online retail trade volume growing by 49.7 percent last year to 2.8 trillion yuan ($451 billion).

The market is currently dominated by Alibaba Group Holding Ltd., which rode the Chinese e-commerce trend to a $25 billion initial public offering in the U.S. in September. But other companies are eager to get in on the action, and new e-commerce sites are starting to spring up.

China has taken huge steps to open its doors to foreign investment during the past year, primarily in the food, consumer and health care sectors. After reopening its market for IPOs, it expanded the Shanghai FTZ where it will pilot its new e-commerce regulation and established new FTZs in Tianjin, Fujian and Guangdong at the end of 2014, which were opened in April. The country has also issued an updated negative list for foreign investment, revised its national security review rule and established plans and administrative regulations for each FTZ.

--Additional reporting by Abigail Rubenstein and Chelsea Naso. Editing by Chris Yates.