China to Allow Foreign Streaming Services? Not so Fast.

China Movie and Entertainment Law

China Movie and Entertainment Law

Over the past few days, reports have emerged of a proposal to open China’s market to foreign streaming services. According to Tech Node, Beijing News reported that China would “allow foreign firms to provide … streaming services … by the end of the year”. This would be a radical departure from current policy and quite surprising in light of present US-China relations. Rumors along these lines have been circulating in Beijing (where I live and work) for the past six months or so and it at first looked like a real breakthrough had finally occurred.

On closer examination, though, all that happened was that the Beijing Municipal Government had issued a release mentioning a plan to allow foreign investment into VPN services as part of some sort of limited pilot scheme. In the Chinese news article descriptions of the plan, such services as “AV product distribution” were taken to mean online streaming by a number of news outlets. Described as a three-year “action plan for open reform” of the Internet, the plan was reported to promote “open reform” and “open foreign investment conditions” for the Internet by “breaking through existing policies”. It’s not clear how this would make sense given that VPNs allow access to foreign websites and services that are blocked in China, but that’s another story.

As an indication of some change in atmospherics, the apparent position of the Beijing Municipal Government may be good news for U.S. streaming service companies. It’s difficult to say because details are hard to come by — despite claims that the plan had been published we have been unable to locate a copy. Certainly, pilot schemes in limited areas are frequently used in China to gauge the viability and impact of reform before a commitment is made at the national level.

For now, let’s be clear that foreign investment in VOD services and TV channels remains prohibited in China. This is because these activities are in the prohibited section of China’s “Negative List”. The Negative List is maintained by the Ministry of Commerce and the National Development & Reform Commission in connection with the “Catalogue of Industries for Guiding Foreign Investment”. Other foreign activities in the prohibited section of the negative list include those carried on by TV production companies, movie production companies and movie distribution companies.

The Negative List also includes a section listing activities in which foreign investment is restricted but not prohibited. Foreign investment in restricted activities is possible but it must usually occur via a joint venture in which the foreign party takes a minority position. For example, though foreign investment in production companies is prohibited, investment in production is, at least as far as the negative list is concerned, permitted via a joint venture.

You can see, then, a foreign streaming service could not take an interest in a China VOD platform without a major change to China’s Negative List. The relevant activity would need to move from the prohibited to the restricted or encouraged sections.  In the alternative, an express exception would be required under some other law or, perhaps, as part of a resolution of the present trade war between the US and China.