China outlined a plan to allow foreign firms to offer some Internet services in the country and ended a more than decade long ban on the sale of videogame consoles

Updated September 27, 2013, 1:22 p.m. ET

China to Open Door Wider for Foreign Tech Firms

PAUL MOZUR

BEIJING—China outlined a plan to allow foreign firms to offer some Internet services in the country and ended a more than decadelong ban on the sale of videogame consoles as part of new rules issued Friday for a free-trade zone in Shanghai. According to a statement from the State Council, foreign companies operating within the trade zone will be able to offer so-far unspecified information technology services, including Internet, software, data processing and storage services. The Ministry of Industry and Information Technology is expected to release more specific guidelines in the coming months, according to lawyers.The new rules have the potential to open up some of the burgeoning but closely regulated Internet industry to more foreign participation. Scrapping the ban on the sale of consoles also gives makers of gaming systems something they have long lobbied for.

But the vagueness of most of the regulations makes it difficult for businesses and analysts to gauge how significant an impact they will have.

“Foreign investors should temper their hopes” while they await specifics on implementing the regulations, said Scott Livingston, a lawyer at Covington & Burling LLP.

The regulations didn’t address whether the tight controls on the flow of online information, including bans on Facebook, FB +1.69% Twitter and other social media, would be lifted within the trade zone, as some recent media reports said. Analysts said they don’t expect a relaxation soon.

According to the statement, companies would have to ensure information security, and any services that violate Chinese regulations would require specific approval from the State Council, China’s cabinet.

Potentially, the new rules’ biggest impact could lie in ending the requirement that foreigners open a joint venture with a Chinese company to operate Internet services such as e-commerce, search or social networking within China.

In practice, few foreign investors have been able to get the license since the first few years after China’s accession to the World Trade Organization in 2001.

In part because of the restrictions on foreign competition, clones of products such as Facebook, Twitter and Pinterest have flourished in China, an Internet market potentially worth hundreds of billions of dollars.

Chinese Internet firms have chafed under the restrictions as well, using a complex corporate structure to get around limits of foreign ownership.

Known as a “variable-interest entity,” the structure uses a series of contractual agreements to enable an offshore holding company owned by foreign investors to effectively run a business inside China. It is unclear whether the new rules will have any impact on the practice.

The statement also said that foreign companies that operate sales and production of videogame consoles within the trade zone will be able to sell the products across China, pending approval of each model by the Ministry of Culture.

Though officially banned in 2000 out of concern for their impact on children, game consoles have long been available, sold by private retail outlets in China’s ubiquitous computer malls. They haven’t caught on, however, because Chinese gamers tend to prefer playing on personal computers, including in Internet cafes, as well as on smartphones.

Earlier this week Microsoft Corp. announced plans to invest $237 millionMSFT +1.53% in a joint venture with the Chinese Internet television company BesTV New Media Co. 600637.SH +6.56% in the Shanghai free-trade zone to develop “family games and related services.”

Efforts such as Microsoft’s to make consoles that provide Internet access and television along with high-end games could attract more Chinese consumers. A number of companies in China, including mobile-phone startup Xiaomi Inc., have recently released set-top boxes to cater to the anticipated demand.

No timeline was given for when sales of videogame consoles would be allowed. The government said the new rules for the Shanghai trade zone will be put in place over the next three years.