19 October 2018
China's crackdown on illegal VPN networks is expected to boost the business of authorized service providers. Photo: Bloomberg
China's crackdown on illegal VPN networks is expected to boost the business of authorized service providers. Photo: Bloomberg

Who will benefit from China’s VPN crackdown?

Chinese authorities have launched a crackdown on unauthorized virtual private networks (VPNs) in a bid to prevent people from accessing blocked internet sites and bypass online censorship.

It is estimated that around 200 million, or 27 percent of China’s total 730 million netizens, have used VPNs to access foreign websites.

VPNs are third-party services that help bypass the so-called Great Firewall, installed by state censors to filter traffic between Chinese and overseas servers and block banned websites. The services allow netizens to access foreign websites via overseas servers.

In an effort to curb the illegal access, Chinese authorities, early this year, were said to have instructed the country’s three big telecommunication firms — China Mobile, China Unicom and China Telecom — to shut down individuals’ internet access if they have illegally used the VPNs.

“Our restrictions target service providers without licenses or operating illegally,” Zhang Feng, a spokesman for the the Ministry of Industry and Information Technology, said at a press conference.

Financial institutions, research institutes, foreign embassies and consulates in China and multinational companies can rent VPNs from authorized carriers to get access to overseas websites.

In the past, Chinese authorities have turned a blind eye to unauthorized use of VPNs. But they are now cracking down on local Chinese companies that offer VPN services without properly registering themselves with the authorities.

The regulatory crackdown on unauthorized service providers will benefit those that have proper licenses and work within the rules. 

Among such firms is CITIC Telecom International (01883.HK).

The Hong Kong-listed firm, which is affiliated with the state-backed CITIC Group, is the largest authorized VPN provider in China, with many big corporate clients.

Last year, the firm reported its revenue from corporate clients rose 7.1 percent to 2.26 billion yuan, mainly driven by “wide use of VPNs”.

As authorities step up the crackdown on unauthorized VPN operators, CITIC Telecom is likely to further cement its dominance in the market.

This article appeared in the Hong Kong Economic Journal on July 27

Translation by Julie Zhu with additional reporting

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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