This article was first published in Asian-Counsel
magazine, issue March 2008www.pbpress.com
Before and after its accession to the WTO the PRC has made
tremendous efforts in opening its market for foreign investors
in order to be WTO compliant. Somewhat surprisingly though, in
the past year, some industries saw the implementation of new
restrictions rather than relaxation of the existing
regulations. While those restrictions may still be compliant
with the WTO commitments, they nevertheless harm foreign
investors that relied on the prior regulations.
To provide one example, last year a specialist sector in the
industry of automotive suppliers, namely suppliers for car
navigation systems, was severely hit by new regulations issued
by the State Bureau of Surveying and Mapping
("SBSM"). Until recently, commercial surveying and
mapping in the PRC was allowed under PRC law for foreign
invested companies in the form of minority shareholding in
equity joint ventures or cooperative joint ventures. This has
changed as of 1 March 2007, when the SBSM issued regulations
according to which "producing electronic navigation
maps" is expressly prohibited to foreigners. Further
restrictions were made as of 19 November 2007, when the SBSM
promulgated the Circular on Relevant Regulations Concerning the
Administration of Electronic Navigation Map (Guo Ce Tu Zi
 No. 7) ("Circular"). Clause 2 of the Circular
defines that 'producing electronic navigation maps'
includes without limitation the activities of compilation,
processing, format conversion and the quality testing of
electronic navigation maps. Subsequently, the amended PRC
Guiding Catalogue for Foreign Investment (effective as of 1
December 2007) listed "producing of normal map-oriented
electronic navigation maps" under the "prohibited
category" to any form of foreign participation in the
On first sight, the abovementioned restrictions which the
PRC government implemented appear to be not too surprising.
After all, map data is, at least in part, considered a state
military secret and foreign participation in the area of
mapping could create a national security concern. However, one
should keep in mind the business operations of car navigation
system manufacturers. Simply put, car navigation systems are a
combination of the actual hardware device, navigation software
and mapping data. Navigation software developers buy mapping
data, compile and implement the same into their software and
sell the same to the hardware producer.
The required mapping data was and is freely available in the
PRC. Prior to the Circular, the software producers were able to
compile the mapping data themselves. Since the Circular is in
effect, the compilation of mapping data and implementation of
the same into navigation software is deemed to be
"producing navigation maps", hence making it now
illegal for foreign invested entities to be engaged in such
business. It appears that one way out would be to engage one of
the few fully licensed PRC domestic enterprises to compile the
mapping data. However, such business model is risky as it could
mean that the software developers have to provide the PRC
entity with detailed information of its software and therefore
risks loosing valuable know how and intellectual property
Other high tech industries are similarly affected and the
aforementioned new PRC Guiding Catalogue for Foreign Investment
also lists a few other industries, for example media or real
estate, which will or are already facing more restrictive
regulations for foreign investors. While the new post WTO
restrictions may still be WTO compliant, such restrictions send
a wrong signal to foreign investors as it may appear that the
PRC returns to a policy of protectionism. In any event, foreign
investors are well advised to keep up to date with new
regulatory developments that may affect their current business
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should
be sought about your specific circumstances.
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