China continues to send mixed signals to foreign-owned companies who want to do business in the world’s largest consumer market. On Tuesday (Jan. 13) China’s Ministry of Industry and Information Technology announced that it will now allow wholly-foreign-owned companies to operate in the Shanghai Free Trade Zone — as long as they’re in the online data processing, transaction-handling or e-commerce industries, according to Tech in Asia.
Until now, Chinese regulations have tightly restricted foreign access to many technology-related industries in China. That has required foreign tech companies to form joint ventures with local partners to release their products in China.
Even in the Shanghai Free Trade Zone, those rules have been the reason Microsoft and Sony were both forced to choose local partners to launch their game consoles, for example.
But today’s announcement opens the door completely for foreign e-commerce companies that would rather go it alone — at least in theory.
In practice, the new freedom is still just a trial run. As it announced the loosened restrictions, MIIT also asked Shanghai’s government to take care in guiding and overseeing foreign-owned companies who take advantage of the new rules. If things go poorly, MIIT might well shut the experiment down.
China’s on-again, off-again attitude toward non-Chinese tech companies has fluctuated especially wildly when it comes to U.S. social-media companies, virtually all of which have been banned in China. In October Facebook founder Mark Zuckerberg pulled the plug on a potential investment in China’s Xiaomi, the world’s third-largest smartphone maker, because of concerns about getting government approval.
Then in December, China’s top Internet censor, Lu Wei, visited Facebook’s U.S. headquarters, prompting speculation that China’s government was warming toward Facebook and social media in general. But this week Beijing said it has shut down 50 websites and social media accounts, with accusations ranging from pornography to “publishing political news without a permit.”
Even without the special challenges of social commerce, there are often good reasons for foreign companies to choose a local partner even if it’s not required by law. China’s e-commerce market has specialized characteristics, and foreign companies that tried to go it alone in the Internet’s early days failed miserably.
Still, any loosening represents an opportunity for foreign e-commerce companies — even if it means facing giants like Alibaba and JD.com — as long as it lasts.