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As China opens services sector, overseas businesses are invited to sell anti-censorship tools — but only to other foreign companies

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By Tanner Brown

Leaping over China’s infamous Great Firewall is getting a helping hand from an unexpected source: foreign companies.

China, widely considered the world’s largest suppressor of internet content, announced that overseas telecom companies can now hold up to 50% in joint ventures to provide VPNs to foreign businesses in Beijing, Chinese media reported last week, quoting Wang Shouwen, vice minister of commerce.

VPNs, or virtual private networks, allow users access to the vast array of online content that China blocks. The censorship-evading tools have long been a lifeline for nearly every foreigner in China and many Chinese seeking to access the broader web, though most are purchased through illicit vendors.

However, some companies in China, both foreign and domestic, have been permitted limited use of VPNs for years, to avoid stymieing their operations — though sales came from Chinese-only companies and required government approval.

The step is part of China’s larger promise to open its markets to overseas companies in a range of areas. Widening foreign access to the services sector has commanded increasing attention as China hopes to force domestic players to improve their competitiveness and thus help the country wean itself from being a manufacturing-reliant economy. 

Last week, in a discussion with former U.S. Treasury Secretary Henry Paulson, China’s ambassador to the United States singled out opening areas that U.S. companies are particularly competitive in, such as financial services.

“The answer is certainly yes,” Cui Tiankai said on Paulson’s podcast when asked if the opening will continue or possibly accelerate. “For American companies and other foreign companies operating in China, there will be better access, better opportunities and certainly greater predictability.”

On Sunday, China’s State Council, the country’s cabinet, announced the establishment of three new pilot free-trade zones, in Beijing, and in Hunan and Anhui provinces. The announcement promised “to open up more services and pilot areas to develop the digital economy.”

The moves come weeks after China said it would introduce a so-called negative list specifically for cross-border trade in services by year-end. A negative list informs foreign companies of areas that are off-limits and ostensibly means unlisted areas are open for investment.

“The country has seen robust services demand and relatively rapid services imports,” the official Xinhua News Agency quoted Ministry of Commerce official Xian Guoyi as saying at a press conference earlier this month.

China’s long-promised pace of opening up to foreign investment has frustrated outsiders since the country joined the World Trade Organization in 2001, but has gathered steam in recent years. It began allowing controlling ownership of local banks by foreigners last year, and this year granted full ownership to foreign life insurers. Similar moves are taking place for mutual-fund and futures companies, as well.

Some big overseas names that have been early to seize the relaxed access include German multinational Allianz Group /zigman2/quotes/210095234/delayed XE:ALV -2.97% , which in January became China’s first fully foreign-owned insurance holding company, while J.P. Morgan Chase /zigman2/quotes/205971034/composite JPM -1.75% has sought full control of its futures, securities and mutual-fund ventures — though for the latter the New York bank will have to pay $1 billion, a reported 50% premium, to buy the remaining 49% of partner China International Fund Management (CIFM), according to a statement published last month by the Shanghai United Assets and Equity Exchange.

Though the VPN move could be a boon for foreign companies that sell such services, and for overseas companies in Beijing to access the wider web, it means little for the average netizen in China, where restrictions on online content and other media are tighter than they’ve been in years.

Beijing college student Liu Wei said he’ll continue using the unauthorized VPN he purchased online, to access blocked content as well as overseas television shows.

“But who knows,” he said. “Maybe I’ll get a job [after graduation] at one of the foreign firms who has the good VPNs.”

Tanner Brown covers China for MarketWatch and Barron’s.

/zigman2/quotes/210095234/delayed
XE : Germany: Xetra
152.00
-4.66 -2.97%
Volume: 1.76M
Oct. 28, 2020 5:23p
P/E Ratio
9.49
Dividend Yield
6.32%
Market Cap
€64.49 billion
Rev. per Employee
€707,118
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/zigman2/quotes/205971034/composite
US : U.S.: NYSE
$ 97.59
-1.74 -1.75%
Volume: 7.07M
Oct. 28, 2020 12:38p
P/E Ratio
12.75
Dividend Yield
3.68%
Market Cap
$302.72 billion
Rev. per Employee
$497,647
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