China’s opening to European investment, the Investment Agreement between China and the EU promises, includes market access in many sectors – including cloud services and other online services. China has agreed to open its cloud services sector to EU investment up to a 50% cap. The entry into force of the CAI may thus create new opportunities for foreign technology companies investing in cloud and other online services, but it also brings additional challenges.
Under current regulatory conditions, foreign companies can enter China’s cloud services market mainly through “technical cooperation” with Chinese licensed companies. In practice, the Notice on Regulating Business Practices in the Cloud Services Market (Draft) is the fundamental basis for cooperation between Chinese and foreign companies.
This notice contains many restrictions, including prohibiting foreign companies from contracting directly with users and prohibiting them from using only the trademarks and brands of foreign companies to provide services to customers. With the CAI coming into force, it is expected that this market barrier will be removed and new investment opportunities will open up for foreign cloud service providers.
On the other hand, European companies must also be aware that European cloud service companies must always pay attention to the strict compliance requirements when entering the Chinese market. For example, cloud service as a category in the communications industry is identified as critical information infrastructure (CII) in China. As a result, companies are subject to more regulations in the area of cybersecurity and data protection, especially when it comes to the Multi-Level Protection Scheme (MLPS) and the cross-border transfer of data.