The explosion of mobile device technology and numbers has created an interconnected global society that is reliant on those communications devices for virtually every aspect of life. China recognizes its need to keep its population connected and has offered Australian telecommunications companies unprecedented access to its telecom sector in the Shanghai Free Trade Zone (SFTZ). Australian telecom companies can now provide value-added services to Chinese consumers within the Zone, with the ChAFTA assuring certainty of service for both the suppliers and their customers.
SFTZ Established in 2013
Shanghai, a prominent city sitting at the midline of China’s eastern coastline, opened its Pilot Free Trade Zone in 2013 to create a Chinese-based sector for testing innovations in economic and social reforms. For centuries, its natural port on the Yangtze River has been its foundation as one of China’s economic powerhouse cities. Although not large geographically, Shanghai accounts for over eight percent of China’s gross industrial output value, 25 percent of the total value of China’s imports and exports, and more than twelve percent of China’s national revenues. As it works to shift its reliance away from manufacturing, Shanghai recently identified six pillar industries that will transform it into a more services-based economy, information, financial services, commerce and trade, equipment assemblies, real estate and automotive manufacturing. Any enterprise that opens its door in Shanghai will benefit from the City’s juggernaut economy.
Value-Added Telecom Services and Call Center Operations
The Chinese government has always imposed restrictions on communications between Chinese nationals and the rest of the world. The expansion of the telecom industry in Shanghai maintains some of those restrictions and excludes foreign-based companies from providing the core telecommunications services of voice, fax and text messaging. However, for Chinese access to services that enhance those core communications, known as “value-added services” (VAS), ChAFTA now grants Australian telecom providers the opportunity to develop VAS enterprises within the SFTZ.
Moving forward, Australian telecom services providers can offer to SFTZ businesses and residents a wide variety of technological business tools, such as application development and management, data storage, data forwarding, online data processing, transactions processing and business class e-commerce functionality. Just as the rest of the world is transitioning much of its corporate function to internet “cloud” and mobile computing, so will China’s SFTZ. Additionally, the cap on the permissible level of foreign investment (previous at or below 50 percent) has been lifted to 55 percent for some services, and eliminated for others. Australian companies can now be the majority owners of their Chinese-based businesses.
But that’s not the only communications door that ChAFTA opens between China and Australia. As of December 20, 2015, the date that ChAFTA entered into force, Australian companies can establish call centers in the SFTZ, as well as domestic multi-party communications services, domestic virtual private network (VPN) services and internet access services.
Getting License Approval
Previously, foreign investors wanting to access China’s telecom market were constrained by the requirement of establishing a joint venture with a Chinese company as a qualification for licensing. According to China’s Ministry of Industry and Information Technology (MIIT), as of March 2014, of the 2,600 companies holding VAS licenses, only approximately 1.2 percent were Chinese/foreign investor joint ventures.
ChAFTA is changing this parameter, too, by eliminating the joint venture restriction, and allowing MIIT to delegate licensing authority directly to the Shanghai Communications Administration (SCA)> Localizing the licensing process is expected to reduce significantly the time necessary to process and approve license applications. The minimum restriction on the value of foreign investments in the Chinese telecom industry does not change, though, and remains set at RMB 1 million (AU $220,000).
Partnership in Both Directions
As China deepens its communications industry with Australian providers, it has also agreed to consult with Australian industry experts when challenges arise. By making this commitment, China assures Australian telecom providers that they will have a forum in which to discuss any concerns that might arise within their ventures.
Communication is a critical aspect of every business, and establishing your communication business in China’s SFTZ will require communication about and comprehension of the area and its cultures. To speed your endeavour into this newly formed market, call me today to discuss the nuances of doing business in Shanghai’s Free Trade Zone.
If you are interested in knowing more about China, download the first free chapters of my book here.