China to allow 50 per cent foreign ownership of VPN services across country as it seeks to boost foreign investment

China to allow 50 per cent foreign ownership of VPN services across country as it seeks to boost foreign investment

China will increase the number of virtual private network (VPN) services in the country and ease rules to allow greater foreign investment, as part of a range of measures from Beijing to boost confidence in the country’s business environment.

China will “steadily and safely” increase VPN services in the country and allow foreign ownership of up to 50 per cent in each provider, moving beyond existing pilot programmes in a number of cities such as Beijing, China’s state council said in a new series of guidelines aimed at improving sagging foreign investment sentiment.

The guidelines, published on Sunday, contain 24 broad measures that also include supporting foreign firms to invest in and set up research and development centres, enhancing intellectual property protection and increasing fiscal and tax support for foreign-invested companies.

The measures come as foreign direct investment (FDI) in China continues to slump amid the country’s patchy economic recovery and rising geopolitical tensions. US President Joe Biden last week announced new measures to restrict US investment in sensitive Chinese technology sectors, including semiconductors, quantum technologies and artificial intelligence (AI) systems.

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FDI into China from January to June fell 2.7 per cent year on year to 703.65 billion yuan (US$98 billion), according to data from the Ministry of Commerce. In the first five months of this year, the US-dollar-denominated total had fallen 5.6 per cent from a year earlier to US$84.4 billion, including a year on year fall of 18.4 per cent in May.

China first allowed VPN operators to accept foreign capital two years ago in Beijing. In October 2021, China’s cabinet said that the municipal government of Beijing could open up VPN services to foreign investment, with foreign stakes capped at 50 per cent.

Despite the relaxation, VPN services remain subject to strict controls in China, with all providers required to obtain a specific permit from the Ministry of Industry and Information Technology, one of the country’s two major technology industry regulators.

Chinese authorities have cracked down on any players offering VPN tools without permission. In November last year, authorities in the northwestern city of Lanzhou arrested a person for providing illegal VPN tools for nearly one thousand people. Last month, the central city of Yiyang also arrested a person for peddling unauthorised VPN software and earning more than one million yuan.

In a set of draft rules published in November 2021, the Cyberspace Administration of China said that “no individual or organisation shall provide “programmes, tools, routes” or services, including internet access, server hosting, technical support, promotion, app downloads, or payment and settlement for “penetrating and bypassing the cross-border data security gateway”.


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