The following article was first published on IPWATCHDOG on September 20, 2018; click here to access the article.
Doing business in China is exciting and potentially lucrative; however, there are “hidden” traps. Most of these hidden traps have been extensively discussed in the Western world – for example, China’s unique subclass system and its massive counterfeiting issue. One area in which we haven’t seen a lot of discussion but has certainly triggered some headaches is the idea – or rather, the requirement – that a business should “register” its website with the Chinese government.
Yes, you read it right – you should register a website with the Chinese government. The buzz phrases here are: an “ICP recordal” or an “ICP license”. ICP stands for “Internet Content Provider”. An ICP recordal is essentially a permission issued by the Chinese government before your website goes live so that it may continue being accessible for consumers in China. The requirement is mandatory.
This article focuses on three questions:
Great question. Here’s what the law says:
In accordance with Section 5 of the “Non-Operating Internet Information Service Recordal Management Regulation” (the Regulation), one must complete the recordal process in order to provide content through the internet in China. Without a proper recordal, one is not allowed to be engaged in such services. This regulation is applicable to any organizations or individuals that provide a non-commercial website to the public. As for a website that’s “operational”, an ICP license is required (Section 4 of the Regulation).
Translating the above to plain English: anyone, business or individual, is now required to either register or get a recordal for its website if accessibility from/in China is important.
You might hear legal jargon such as “non-commercial” and “operational” websites. Neither is a phrase that makes much sense in English. To fully explain this, we will need to dive deep in China’s internet law which is not a fun place to go. Suffice it to say that an “operational” website is more about websites serving as platforms that collect fees (a very rough categorization). A “non-operational” (i.e., a non-commercial) website is content-based such as those striving to advertise and market products to consumers. Bottom line: if you want your website to be accessible from/in China, it’s mandatory to get some permission from the Chinese government.
This is not a new rule – it was announced to the world in March 2015. The reason it is now becoming more relevant is that the government will direct the hosting services to shut down a business website, without notice, if an ICP license or an ICP recordal is nowhere to be found. It used to be that the hosting services would turn a blind eye and only shut down a site if the government started poking around and asking questions. Now, the good old days are over. Without an ICP license/recordal, a website will not even go live to see the light of day in China.
The answer depends on how much your business is dependent on direct interaction with consumers in China. If having a direct interface is not important or generates very little revenue, you may choose to ignore the rule (for now). On the other hand, if having a stable connection when people visit your site from China or if SEO from Chinese search engines is important, some compliance steps should be considered.
Here are two scenarios to illustrate the difference:
Jerry is a successful Amazon seller. His top-selling item is a quality, high-end leather wallet. His activities in China are limited to manufacturing only. Jerry sources the wallet from an Alibaba seller that has factories in Shenzhen, attaches his own logo to the wallets (the “private-labeling process”) and then resells the wallets to consumers in the United States and Europe. Jerry has a great website and a sophisticated Amazon store; however, the content of the both sites cater to Western consumers only. Under such circumstances, Jerry could ignore the ICP rule. Most Amazon sellers fall under this category.
Jerry’s wife, Emily, has a different business model. She has a lucrative gym bag business that she sources from China and also targets consumers in the Middle Kingdom from her own website, and her stores on Taobao and JD. Emily also maintains an active social media presence in China through WeChat. Emily’s website is her business bloodline; therefore, an ICP recordal is extremely relevant to her business.
The good news here is that businesses do have options. The strategies depend on a particular business’ scale of operation and the level of risk tolerance.
Option 1: the “Good-Kid” Approach (a full compliance)
This is what maximum compliance looks like: the Company rents or sets up a server that’s physically located in Mainland China. This involves server set-up and/or transferring an existing hosting service from overseas to China. The cost is not insignificant.
In addition to the cost, the key issue here is the potential loss of control. Under this approach, the owner of the website will need to be changed to an entity based in China with a local contact person. This means a sales and marketing team in China will have full control and access to the website rather than the company’s own sales/marketing team maintaining control back in the US. Handing over the bloodline of one’s business to a stranger in a foreign land is a scary idea – especially if that person is not bound by the same rule of law.
Option 2: the “Bad-Kid” Approach (Compliance on the Surface)
Rather than implementing changes on the hosting level, many companies simply redirect the domain to a hosting service overseas where Hong Kong is the most popular choice. The sacrifice here is the speed; the website is not usually “stable” and tends to load slowly. Also, this doesn’t usually help out a business’ SEO on the Chinese search engine. And, this option does not completely take away the risk of the website being shut down.
Option 3: the “Popular Kid” Approach (Half Compliance)
This appears to be the most popular option at the moment. It complies with the ICP recordal at some level but still does not completely take away the business’ desire to fully control its bloodline. Here’s how it works:
The downside of this approach is that the hosting service remains overseas so the website is still likely to encounter speed and stability issues when one is attempting to access it from China. The up-side is that compliance is met with the business owner remaining in control.
As China transitions from the world’s manufacturing hub to a retailing destination, the ability to take full advantage of China’s online world is becoming increasingly important for Western companies. In addition to learning the differences for China’s trademarks and IP systems, it is important to understand that the internet world in China does not necessarily play by the same rules either. Hidden traps in China are rarely complex but are indeed complicated by the facts that many companies assume the rules are or should be the same. The key to resolve a hidden trap is to first acknowledge its existence – landmines themselves are less scary as long as we know how to watch our step and walk around them.