China: Obtaining An ICP License In China: A Business Necessity For Any Web-Based Presence?

The Internet has exploded in China, and some of the world's leading e-commerce and other web-based business like Alibaba, WeChat and others have originated from the PRC. However, the PRC does exercise stricter control over the Internet and websites than some foreign businesses might be used to. In order to operate a website in the PRC, it is necessary to obtain an Internet Content Provider (or ICP) License. Chinese law provides two different types of these licenses, the commercial and non-commercial ICP license. A commercial ICP license allows a website to engage in online sales and payment integration. All websites hosted in mainland China are required to obtain at least one of the two types of licenses. Successfully applying for and obtaining an ICP license is therefore a business imperative for any aspiring business in China that plans to have its own website or operate some kind of online sales on a server located in China. Indeed, while hosting offshore might be a short-term solution, it almost never guarantees a satisfying internet speed for users in mainland China and hosting in China quickly becomes a must.

There are certain tricks or arrangements that businesses can use to make operating a website or online business in China simpler than simply registering for an ICP License directly. However, the business attempting to do so must be careful to ensure careful compliance with Chinese law so as not to jeopardize the very existence of its Chinese operations by cutting corners in its attempts to avoid the necessity of applying for and obtain an ICP License.

The Requirements under Chinese Law for Websites Operating in China

Chinese law governing websites and web-based businesses is regulated by the Chinese Ministry of Industry and Information Technology (MIIT, 工业和信息化部). The source of the legal regime governing websites is set forth in the Telecommunications Regulations of the People's Republic of China of 2000. The law is crystal clear: all websites with their own domain name that operate inside China are required to obtain an ICP license. China-based Internet service providers are therefore required to block websites that lack a proper ICP License and can face negative repercussions of their own for violating this requirement. Applying for an ICP license is therefore a mandatory and legal requirement if you wish to operate a website in China. Operating from inside mainland China is also a prerequisite for acquiring an ICP license.

What is an ICP License Exactly?

At its most basic level, an ICP license is a state-issued registration number that allows the holder of the license to host a website on a mainland Chinese server. All sites hosted on a server in the Chinese mainland must, by law, apply for and receive an ICP license before their website goes live, a rule enforced at the hosting level. (Meaning that if the MIIT discovers that an unlicensed site is attempting to register a domain to host a website, it will block the party from doing so). Obtaining an ICP license is an additional step that is taken after a business chooses a hosting company to actually store its website on and buys a domain name, but must occur before a website goes live and is actually available to any casual Internet user to access.

The Two Types of ICP Licenses

The ICP Filing or " ICP Bei'an"

An ICP Filing, known in Chinese as "ICP Bei'An", is the first level of ICP certification. All applicants must apply for an ICP Filing (also sometimes known as a non-commercial ICP License) regardless of whether their website is commercial or non-commercial in scope. Foreign businesses with no commercial presence in the PRC or foreign nationals without a passport are ineligible to apply for an ICP Filing License. After obtaining an ICP Filing, the licensee will be eligible to host their website on a China-based hosting server or CDN, but are not able to integrate e-commerce features or online payment. An ICP Filing does not permit the licensee to engage in direct online sales. Instead, a website that has obtained a "Bei'an" is only supposed to be used for passive informational purposes.

The process for obtaining this type of license involves choosing a host for your domain name, buying a domain name, and then submitting an application to the MIIT for approval. Individuals applying for a non-commercial ICP License are required to include a copy of their passport with their application, while businesses are required to include a copy of their business license when applying. This is done at the provincial level, but if the application is granted and a non-commercial ICP license is issued, then this license is registered with a central government database. An applicant can typically expect to wait in theory 20 days once the application is submitted to the MIIT for approval of the application, but from our experience having to wait a month or two is not unusual.

The Commercial ICP License

An ICP Commercial License, known as an "ICP Zheng" in Chinese, allows online platforms or third-party sellers of goods and services to deploy their website on a host in mainland China. To apply for an ICP Commercial License, a business or person must first obtain an ICP Filing. Most importantly: the business needs to be Chinese owned! The application for an ICP Commercial License requires information similar to the ICP Filing application. After obtaining both an ICP Filing and ICP Commercial License, the licensee is eligible to launch a website with e-commerce and online payment integration on a server based in mainland China. An ICP Commercial License typically takes the MIIT approximately 60 working days to process and approve. Once this approval has been received, the business or individual must register with the Chinese Public Security Bureau before his/its website can go live, a new requirement as of 2016. That can add another 30 days to the process.

Tricks for Businesses Looking to Avoid Using a Commercial ICP License but Still Looking to Operate in China

Although many businesses and websites have tried to get around the MIIT's regulatory grasp by operating a website or web-based business without a commercial ICP license, they are eventually discovered and shut down. Websites that do so are typically warned by the MIIT and then are eventually shut down by the agency. Nevertheless, there are some "tricks" or ways that many foreign businesses have operated in the past that do not involve directly obtaining and then utilizing an ICP license and the sometimes onerous restrictions this can entail but still allow the business to operate a website accessible in China.

Far and away the most common approach for foreign businesses looking to operate a website or offer their services online in China is to operate through a Chinese company. In most cases, the foreign business will obtain its ICP license through a locally-owned Chinese company that is staffed by Chinese nationals. The foreign company will then "borrow" or use (depending on your view) the local Chinese company's ICP license to run its Chinese operations. For example, American web giant eBay acquired its license through a Chinese partner called EachNet, while Microsoft partnered with a Chinese company to form a joint venture in China to operate its MSN service. Typically, the foreign company will, via a VIE structure, exercise control over its partner Chinese company to ensure that it has complete control over its operations and all major decisions involving the website and the company's web presence in China. Nevertheless, this approach is not without its risk, as Chinese regulators investigated Google in 2006 for allegedly violating Chinese law by operating its search business in the PRC under a license owned by a partner company. Nevertheless, the web giant was accused of running its Chinese operations though servers based in the United States, which itself would be a violation of Chinese law.

Another option for foreign businesses looking to avoid the more onerous restrictions of applying for and obtaining a commercial ICP license in mainland China is hosting the business's website in Hong Kong. For small and medium sized enterprises that have a website with modest levels of user traffic, hosting a website in Hong Kong can provide an attractive alternative to hosting in mainland China. Businesses that operate out of Hong Kong are not required to obtain an ICP License in order to operate and this can be a significant benefit for businesses that do not wish to go through the hassle of the ICP License process. However, while some of our clients have decided to go down that path, many have complained about the impact that such structure had on the user experience of the website (website is slow to load for China based users).

Conclusion: There Are Ways to Operate a Website or an Online Business in China Without an ICP License, But Doing So is Risky

Given the generally tight control exercised by the Chinese government over the Internet, and the operation of websites and web-based businesses in particular, paying attention to the legal regime governing the establishment and operation of websites in China is critical. This means that any foreign business seeking to operate a website needs to "mind its P's and Q's" and adhere to Chinese law. Doing otherwise could jeopardize its ability to serve the world's second-largest economy effectively, or at all.

March 6, 2017

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.