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Restricting Regulations

Since China’s “opening up” changes to regulations for foreign investors have usually meant that the regulations have been relaxed. However, more “restrictions” are popping up in relation to regulations at the moment, and foreign investors are not always seen as a positive influence. We have already had property investment restrictions (see here [1] and here [2]), but now the online and telecoms sectors get some too.

There has been a lot of press about Google and others operating online in China. Now new regulations have been issued for foreign investors operating internet services in China (according to a report in China Daily). It will now be a requirement that all such companies have their own licenses (and do not rent them from local firms). At the same time, restrictions are being increased in the tightly-regulated telecoms sector (from a report by Forbes). Foreign investors will apparently find that existing regulations that prohibit foreign firms from operating value-added telecoms services (especially in the wireless sector) will be enforced more strictly.

Of course, it is the application of regulations that really matters in the long term, once the campaign rhetoric has died own. AS a report in the FT points out, sometimes investors can benefit from “flexible interpretation of Chinese government edicts”. The recent property investment restrictions are given as an example:

Very true but, even so, Beijing should not be ignored! Local interpretations of property (and other) regulations have been overturned in the past (see here [3]).

Policy and regulation can change quickly in China, and investors need to keep an eye on where these changes are going. Active engagement with the authorities – and an understanding of why policies are being introduced and how they will be implemented – can help companies to manage policy risk and avoid some nasty problems.

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