China has witnessed an explosive growth of smart cars in recent years. Digital maps, essential for smart driving, are under strict regulations in China. With the tightening regulation on Chinese companies’ foreign IPOs and the release of the Data Security Law of China (“DSL”), companies developing or using digital maps, particularly the high-definition maps (“HD Maps”), will face more stringent scrutiny and regulations, and hence higher risks. To correctly assess the potential risks, it is critical for players in the automobile industry, especially foreign invested companies, to understand how digital maps are regulated in China.
1. Collection of Map Data and Compilation of Digital Maps
In China, map related business is regarded as surveying and mapping business（测绘业务）and classified into 10 categories[1] under the Administration Measures on Survey Qualification(《测绘资质管理办法》). Each category is subject to specific surveying and mapping licensing requirements.
The collection of map data and the compilation of digital maps for navigation purpose (particularly HD Maps for autonomous driving) fall into the category of Compilation of Navigation Digital Maps(导航电子地图制作) (“CNDM”) and need a CNDM license.
According to the Special Administrative Measures (Negative List) for the Access of Foreign Investment (2020)(《外商投资准入特别管理措施(负面清单)(2020年版)》) (“Negative List”), foreign investors are forbidden from investing in CNDM business, and hence a foreign invested enterprise (“FIE”) is unable to obtain the CNDM license, regardless of whether it is a joint venture (“JV”) or a wholly foreign owned enterprise (“WFOE”).
2. Publication of Digital Map
a. Map Review(地图审核) before Publication
According to the Map Administration Regulations(《地图管理条例》), almost each map in China needs to be reviewed and approved by government[2]. Each map that passes the government’s review will be granted a map approval number（审图号）.
b. Qualification for Publication
According to the Map Administration Regulations（《地图管理条例》）, only qualified publishers in China are eligible to apply for map reviews[3].
According to the Negative List, foreign investors are forbidden from investing in map publication business.
3. Provision of Internet Map Service
a. License for Internet Map Service（互联网地图服务） (“IMS”)
If a digital map is provided through Internet, the map service provider likely needs to obtain the IMS license, which is one of the 10 categories of surveying and mapping business under Chinese law.
IMS is further classified into three sub-categories: (i) geographic positioning（地理位置定位）, (ii) uploading and labeling of geographic information（地理信息上传标注）, and (iii) map database development/（地图数据库开发）. A company only with the IMS license is not allowed to collect map data and compile maps. Instead, it must have the CNDM license.
While foreign investors are forbidden from investing in CNDM business, the IMS license is open to foreign investors. However, due to the restriction on foreign shares for the ICP (as defined in Section b below) license, which has not been lifted yet (please see Section b below for details), a foreign investor has to form a JV with a Chinese partner and the foreign investor’s shares cannot exceed 50%.
In addition, the provider of IMS must use the maps pre-approved by government[4].
b. License for Internet Content Provider（互联网信息服务） (“ICP”)
IMS may also be deemed to be Internet content service and hence require the ICP license. The ICP license is open to foreign investors, provided that (i) they must form joint ventures with Chinese partners, and (ii) the shares owned by foreign investors cannot exceed 50%. However, in practice, it is very difficult for foreign investors to obtain the ICP license. According to the latest report issued by China Academy of Information and Communications Technology (“CAICT”), only 100 Sino-foreign JVs have obtained the ICP license (of which most are investors investing under the Closer Economic Partnership Arrangements with Hong Kong and Macau)[5].
4. Storage and Outbound Transfer of Map Data
Map data must be stored in China[6]
. The export of map or map data is subject to government’s approval[7].
In addition, according to the Cyber Security Law of China (“CSL”) and the DSL, map data will likely fall into the scope of important data（重要数据）, and consequently be subject to security assessment for its outbound transfer.
5. Map-related Research and Development (“R&D”)
Map-related R&D work itself does not require any special license or permit. Even FIEs may conduct it independently, provided that:
a. if the R&D work needs to use any map data, the data must be collected by a Chinese company with the CNDM license[8];
b. the Chinese CNDM operator cannot share the map data with FIEs without government’s approval[9]; and
c. if the map data needs to be exported out of China, Chinese government’s approval and security assessment are needed.
6. Foreign Investment in Digital Map Services in China
Equipped with high-tech sensors, smart driving cars can collect enormous data in motion. For foreign investors in automobile industry, how to legally utilize such valuable data and transform it into commercially available services to Chinese consumers is quite challenging. Provision of digital maps online typically would be deemed to be value-added telecom service under Chinese law. It faces not only the strict regulation on surveying and mapping business, but also the equally stringent regulation on the telecom industry.
a. A JV, in theory, can obtain the IMS license and the ICP license, but it cannot obtain the CNDM license. Also, obtaining the IMS license and the ICP license would be very difficult in practice.
b. A variable interest entity (“VIE”) may not be available either. In a typical VIE structure, an offshore holding company forms a WFOE in China, which controls and receives financial benefits of a domestic company whose shareholders of record are Chinese individuals (typically the founders) or companies. This domestic company holds licenses and assets that cannot be legally owned by foreign enterprises and is referred to as the “VIE”. Such VIE structure is widely used by Chinese companies listed or seeking to be listed in foreign stock exchanges. The VIE structure allows investors to control the daily operation of telecom services in China. However, it is noteworthy that:
1) In a typical VIE structure, the foreign investors are mostly financial investors, who do not participate in the daily operation. Instead, the founders, usually Chinese citizens, control the daily management. If the foreign investor itself is an automobile manufacturer, a technology company or an online service provider, the Chinese government may be less tolerant, and there may be substantial uncertainties about whether such VIE structure is still allowed.
2) Even if the foreign investors are passive financial investors, it is uncertain whether such VIE structure would work for map related business. This is particularly true after Chinese government’s recent investigations into Chinese companies’ foreign IPOs on the grounds of data security.
c. A strategic partnership with Chinese partners may be more feasible. Foreign investors may license its technologies and trademarks to a Chinese partner with requisite licenses, and share revenues with the partner.
Having said that, different digital map services require different licenses in China, and different investors may have different strategies for their investment. More importantly, the regulatory environment in China is constantly evolving. To ensure a successful investment, foreign investors may want to consult experienced legal professionals and plan carefully beforehand.
[1] Geodesy, aerial photography for surveying and mapping, photogrammetry and remote sensing, GIS engineering, engineering surveying, real estate mapping, ocean surveying and mapping, map preparation, complication of navigation digital maps, internet map service（大地测量、测绘航空摄影、摄影测量与遥感、地理信息系统工程、工程测量、不动产测绘、海洋测绘、地图编制、导航电子地图制作、互联网地图服务。）
[2] Article 15 of the Map Administration Regulations
[3] Article 16 of the Map Administration Regulations
[4] Article 38 of the Map Administration Regulations
[5] http://www.caict.ac.cn/kxyj/qwfb/qwsj/202004/P020200409343939581925.pdf
[6] Article 34 of the Map Administration Regulations
[7] Article 24 and 16 of the Map Administration Regulations
[8] Article 1 of the Notice on Strengthening the Production, Test, Application and Management of Autopilot Maps
[9] Article 2 of the Notice on Strengthening the Production, Test, Application and Management of Autopilot Maps
Jay Si
Shanghai Office
Non-equity Partner
Practices：Investment/M&A & Corporate Governance, Cybersecurity & Data Protection, Labor & Employment
Industry Sectors：Energy and Natural Resources
Ron Cai
Shanghai Office
Senior Counsel
Practices：Investment/M&A & Corporate Governance, Cybersecurity & Data Protection, Litigation & Arbitration
Industry Sectors：Energy and Natural Resources, Telecommunications and Technology
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《Compliance with China's Amended Work Safety Law》
《Draft amended regulation to reshape China’s cybersecurity review》
《New Heights in Data Protection: What You Need to Know About DSL》
《National Security Review on Foreign Investments into China》
《China’s Export Control Regulation and Its Impact on MNCs》
《A Guide for Foreign Investment in Online Services in China》
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