United States: How China's New Regulations Affect Online Publishing

Last Updated: July 4 2016
Article by Edward J. Epstein

On February 19, 2016, President Xi Jingping toured China's central media in Beijing, visiting the headquarters of the People's Daily, Xinhua News Agency and CCTV. The theme of this tour can be summarized by a banner behind President Xi on TV, saying "Our family name is 'the Party'" and "Absolute loyalty", a reminder that China's state media are tools of propaganda.

This echoes China's new regulations on online publishing that were released only a few days earlier. The Administrative Measures on Online Publishing Services (the "Online Publishing Measures") took effect on March 10, 2016. Less than a month later , the draft Administrative Measures on Internet Domain Names (the "Domain Names Measures") were published for public comments.

Both Measures raised controversy in the foreign media, which immediately reacted with headlines like "China issues broad new rules for web" which would make "foreign websites impossible to reach", thus raising serious concerns about the impact of both Measures on foreign companies operating in China. In fact, the impact has been exaggerated: this prohibition of foreign investment in the publishing sector has long been subject to other regulations and government circulars, and the requirement in the Domain Names Measures for domain names to be registered in China does not mean an overall ban on foreign websites.

The Online Publishing Measures are mainly a compilation and restatement of existing rules, but this does not mean they are meaningless. The impact is to codify existing rules into a single regulatory regime that provides the government with a clear legal basis for intensifying its drive to fortify the Internet against unwanted influence, especially foreign influence. The most significant changes also seem to target foreign investments to prevent them from circumventing existing restrictions, including the expansion of the definition of online publishing and the crackdown on "contractual control schemes".

1. Expansion of "online publication"

The Online Publishing Measures expand the scope of "online publication" to include pictures, maps, games, animation and online documentation databases etc., together with a catch-all clause that allows the regulator to recognize "other online publication". Therefore, online publishing activities that were not previously regulated may be subject to the Online Publishing Measures, and, where they cannot obtain a permit, may be banned from continuing business.

2. Contractual control now less feasible

Before the Online Publishing Measures, it was possible for a foreign investor to adopt a VIE structure to control a Chinese entity that holds a publishing permit through contractual arrangements, and thus "indirectly" carry on online publishing business in China. An even simpler way is for the foreign investor to "borrow" a permit from a Chinese permit holder and carry out business in the name of the Chinese holder. Both the VIE structure and "borrowing" the permit fall into contractual control schemes.

The Online Publishing Measures, however, make it much less feasible to adopt such schemes by requiring (1) the applicant itself to have commensurate technology, equipment, online platform and website for engaging in online publishing, and (2) prohibiting Chinese permit holders to "lend" their permits to others by any means.

In a contractual control scheme, it is usually the foreign party that holds the necessary technology, equipment and platform for online publishing and the foreign party would be reluctant to transfer them to the Chinese party, which makes it much harder for the Chinese party to apply for a permit. It remains to be seen whether such contractual control schemes would be treated as "cooperation" between foreign and Chinese parties within the meaning of the Online Publishing Measures and thus capable of approval by the regulators.

The Online Publishing Measures define "online publishing services" as "to provide online publication to the public through information networks", and "online publication" as " digitized works with publishing characteristics such as editing, production and processing, provided to the public through information network". All online publishing services are subject to approval and the issuance of an "Online Publishing Service Permit". Obtaining such a permit is easier for those who are already registered as a publisher of books, audio and electronic content, newspapers and magazines, but is much more difficult for any newcomer to online publishing.

Similarly, the Domain Names Measures do not come out of thin air, but are a revision of the existing Administrative Measures on Chinese Internet Domain Names that were enacted in 2004. The Domain Names Measures regulate "engaging in Internet domain names services and related activities within China". Compared to the 2004 rule, the Domain Names Measures have more detailed requirements on the establishment, management, administration and supervision of domain name registries and registrars, and most importantly, the addition of Article 37, which requires foreign-registered websites hosted in China to be re-registered in China (see below "foreign-registered websites").

Many businesses carried out by foreign investors in China may be affected by both Measures. Here are some examples:

Online Games

Online games receive an unusual level of attention in the Online Publishing Measures. It is provided that before publishing online games, they must be censored and approved by authorities at both provincial and national levels (even for those business operators who possess a permit).

For foreign investors, running online games outside China and soliciting Chinese players to access foreign servers is still possible, but you never know when the Chinese government is going to be unhappy about this and block access to these sites. Therefore, foreign online game developers, operators and distributors that wish to set up a "Chinese server" for a game can license the game to a Chinese party who holds a permit and run the game though this Chinese agent. The agent will then be responsible for the censorship and approval process.

Digital books

Several foreign companies hold a "permit for operation of publications" in China and have been selling books in physical form. But the digital book business carried out by such foreign companies is much more controversial.

On its face, selling digital books online in China clearly falls into providing " digitized works whose content is identical to already published books, newspapers, periodicals, audiovisual works, electronic publications, etc." through information networks and thus is subject to the long-standing foreign investment restrictions in this field.

To circumvent such restrictions, contractual control schemes have been adopted by foreign digital book sellers to "cooperate" with a Chinese permit holder to sell digital books in the Chinese party's name, whereby the Chinese party would apply for a permit for online publishing and the foreign party then would show and sell digital books on its own website.

As mentioned above, contractual control schemes are made more problematic, if not impossible, under the Measures. Going forward, if the Measures are strictly enforced, the business model foreign digital book sellers currently adopt will no longer work as it is only lawful for entities that hold the permit to sell digital books. A foreign party will have to cooperate with Chinese parties on a project by project basis, surrendering itself to the discretion of the approval authorities.

Online Game/App Distribution Platform

Foreign media have also expressed their concerns on the continuing operation of the Chinese versions of online game and applications distribution platforms such as Sony Playstation Network, Microsoft Xbox Live, and Steam.

This issue is relatively new since games and apps were not covered by existing laws and regulations on publishing. Now that the Measures have expanded the scope of "online publishing" to cover games and potentially also apps (although apps are not singled out in the definition of online publishing, many apps on app stores are games, and other apps may be subject to the catch-all clause as well), whether these online gaming/app stores can stand under the Measures really depends on where the services are provided.

In short, if any of these services constitute "providing games/ apps to the public through information networks within China", then it is "online publishing" and foreign parties would be banned from doing this. "Providing games/apps to the public through information networks" is obvious, but the key issue is whether this happens "within China".

It is territory-sensitive. Our examination shows that as of the date of this article, the Chinese versions of major games/ apps distribution platforms do not offer game purchase/ download options and any such purchase/download will be directed to their respective overseas site (although for some items payment can be settled in RMB). This means none of them is really online publishing "within China", and therefore will not be subject to the Online Publishing Measures (but again, they may be blocked from within China).

The Online Publishing Measures make it even harder for these foreign digital game distribution platforms to make their presence in China. Digital and hard copies of these games can nonetheless be imported and distributed in China through a licensed Chinese entity, but this may even be more trouble than just to encourage Chinese buyers to download games from their overseas platforms.

Public Accounts on Social Networks

Even foreign invested companies now have their own Wechat or Weibo public account for marketing or advertising, thus the Online Publishing Measures worry people in this area as well. The question is, are individuals or entities who "publish" or "upload" information to these social media platforms intended to be regulated by the Online Publishing Measures?

At this stage, we can only say that the Online Publishing Measures have no stricter rules than existing ones in this respect and users on Wechat and Weibo have never before been asked to obtain a license in order to "publish" on these sites (although content published will be censored and deleted if deemed inappropriate). The information circulated on these platforms is also different from "publication" in that it does not have the "editing, production and processing" characteristics as defined in the Online Publishing Measures. Therefore, publishing information on these social networking platforms should not constitute online publishing and even the operation of public accounts by foreign-invested companies should not be affected.

Foreign-registered websites

The addition of Article 37 to the Domain Names Measures raises the greatest concerns for foreign websites. Article 37 reads:

Domain names engaging in internet access within China shall have services provided by domestic domain name registrars, and domestic domain name registries shall carry out operational management. 1

For domain names engaging in internet access within China but not managed by domestic domain name registries, internet service providers shall not provide internet access services.

Article 37's impact on foreign websites will depend on whether they are currently hosted on servers inside or outside China:

  1. foreign websites that are hosted on servers outside China will not be affected at all because they do not "engage in internet access within China" and are therefore not subject to the Domain Names Measures at all. These websites will therefore be subject to filtering and can be blocked within China at any time.

  2. foreign websites that are hosted on servers within China but whose domain names are not currently registered by a Chinese domain name registrar will have to register in China to continue operations in China. For example, some foreign companies host their foreign-registered websites on mirror servers in China in order to avoid being filtered and blocked by the Chinese government like a foreign-hosted website. If the Domain Names Measures become law, however, this arrangement will no longer be possible.

Both Measures send a clear and consistent message that China wishes to control online activities within its borders. Although they are mostly a compilation and restatement of past restrictions and requirements, with the expansion of the definition of online publishing and the crackdown on contractual control schemes, and the requirement for websites hosted in China to use URLs registered in China, both Measures further tighten the noose around foreign investors in China.

Footnote

[1] In China, China Internet Network Information Center (CNNIC) is the ultimate domain name registry and it has approved a number of agents as registrars all over the country (the two major players being Wanwang under Alibaba and Xinnet) with which domain names can be registered. Domain names registered with Chinese registrars will be hosted on servers within China and managed by CNNIC. However, registrants within China are also able to register their domain names with foreign registrars such as GoDaddy and Network Solutions (for example, sohu.com and cctv.com are registered with Network Solutions), and choose to host the domain name on servers within China for faster connection.

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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