Photo: VCG

The State Council, China's cabinet, on Monday gave the green light to Beijing's plan to allow foreign shareholding of no more than 50 percent in domestic virtual private network (VPN) services as part of the capital city's moves to open up its services sector.

The opening-up move intends to attract foreign telecom operators to provide VPN services for foreign-invested firms in Beijing via the set-up of joint ventures, according to an announcement posted on the central government's website on Monday. 

The move is part of revisions to a raft of rules and regulations, effectively immediately in designated areas in Beijing only, in line with an action plan unveiled last September during the annual services trade show in Beijing.

Foreign shareholding limits would be lifted in the Haidian park of the Zhongguancun national innovation demonstration zone in Beijing exclusively for app stores, among other revisions.

The VPN service opening-up, for its part, is a modification of the 2020 edition of a negative list for foreign investment access, which stipulates that the share of foreign investment in value-added telecommunications services shouldn't exceed 50 percent, except for e-commerce and domestic multi-party communication services, among others, and basic telecom services must be majority-owned by China, read the Monday announcement.

A VPN, acting as a secure tunnel between a device and the internet, enables users to visit sites that might be inaccessible.  

Currently, only VPN offerings from authorized basic telecommunications operators are legal in China, while those provided by other businesses or overseas companies are not, according to an article on VPN compliance posted earlier this year on the website of AllBright Law Offices, a Shanghai-based law firm.

Foreign-invested firms "shall use VPNs in compliance with regulatory policies, and verify the operational qualification of a VPN vendor before purchasing or renting it from a telecommunications business operator," the article said, adding that a qualified authorized telecommunications business operator ought to obtain a permit for creating international communication gateway exchanges.

In January 2017, the Ministry of Industry and Information Technology issued a notice, saying that without the ministry's approval, the establishment or rental of dedicated lines or other conduits, including a VPN for cross-border business operations, would be banned.