With the rapid growth of China’s ecommerce industry and market, more and more foreign investors are planning to conduct ecommerce business in China. There is no specific definition of ecommerce in the Chinese law. But in practice, the ecommerce business model can be divided into two types. The first one is retailing ecommerce, which means a company sells its own goods through its own website. The second one is platform ecommerce, which means a company provides data processing and transaction processing services to third parties through its online selling platform.

For retailing ecommerce, the Ministry of Commerce of the PRC issued a Circular on Relevant Issues Concerning the Approval and Administration of Foreign Investment in Sales via the Internet and Automatic Vending Machines (hereinafter referred to as the Circular) on 19 August 2010, which has clarified that online sales is just the extension of sale activities of an enterprise, foreign invested manufacturing enterprises and commercial enterprise may conduct online sales activities directly. Value added telecommunication services (VATS) license is not required provided that a foreign invested enterprise only sells its own products through its own websites or online platform. It shall complete website filing (ICP filing) procedures with the competent telecommunication administration authorities instead. The Circular has also clarified that if a foreign invested enterprise allows third party trading entities to use its website or online platform to sell products, i.e., use its own online platform to provide network services for other trading entities, it shall apply for and obtain a VATS license from the Ministry of Industry and Information Technology of the PRC.

There is no confusion that companies providing platform ecommerce services like Alibaba or Tmall must apply for and obtain a VATS license from the Ministry of Industry and Information Technology of the PRC. Foreign investors are allowed to set up wholly foreign owned enterprises (WFOEs) in China to provide platform ecommerce services (online data processing and transaction processing services) from 19 June 2015. And pre-approval from the Ministry of Industry and Information Technology of the PRC has been eliminated from 15 October 2020. Now foreign investors can set up a WFOE in China first and then proceed to apply for a VATS license from the Ministry of Industry and Information Technology of the PRC upon issuance of the business license of the WFOE. However, the foreign investors are still required to submit the documentation on their good track record of and operation experience in operating value added telecommunication services during the VATS license application process. If the foreign investors have no good track record of and operation experience in operating value added telecommunication services, the VATS license will not be granted to the WFOE.

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