| |
- Legal Framework for
Dong Trading Business in PRC
- Major Developments in
PRC Law
- Entry Modes for Doing
Trading Business
- Procedure to set up a
trading business in PRC
- Goods subject to
special regulations
- Commodity Trading
rights in China
Legal Framework for Dong Trading
Business in PRC Foreign investors
can carry on foreign and domestic trading business through the
establishment of a foreign invested commercial enterprise (the
FICE) under the PRC Law for Sino-foreign Equity Joint Venture,
the PRC Law for the Sino-foreign Co-operative Joint Venture,
and the PRC Law for Foreign Funded Enterprises.
Major Developments in PRC
Law Before China's WTO accession on
December 11, 2001, the PRC Legislative body had amended three
major pieces of the law for the Foreign Invested Enterprises
(the FIE), including the removal of the requirements to:
- to balance its receipt and payment of foreign currency;
- to purchase from domestic market (the local contents);
- to achieve export performance; and
- to file the production plan with the government
department for record.
In April 2004 the PRC Ministry of Commerce promulgated the
Administrative Measures of the Commercial Sectors for
Foreign Investment. The 2004 Administrative
Measures provides for the basic legal rules for the
establishment of the Foreign Invested Commercial Enterprises
(the FICE). In addition, the Ministry of Commerce has issued
other relevant administrative orders to make way for the
implementation of the law on the liberalization of the
wholesale and retail sectors since 2004.
Legal development After China's WTO accession
|
Administrative order |
Details of the administrative
order |
|
I |
Order No. 8 (2004)
Effective on 1st June 2004 |
Chinese government fully
opened up the distribution sectors to foreign
investors |
|
II |
Order No. 9 (2005)
Effective on 2nd April 2005 |
Production type FIE can
distribute third party goods by expanding scope of
business |
|
III |
Order No. 76 (2005)
Effective on 13th July 2005 |
FIE situated in free trade
zone and bonded logistic park is granted the
distribution rights to do trading with companies
situated outside FTZ/BLP |
|
IV |
Order 94 (2005)
Effective
1st March 2006 |
Ministry of Commerce
delegated its approval authority to provincial
governments |
Entry Modes for Doing Trading
Business There are five entry modes
to set up trading operations under the current PRC legal
framework:
- Production-type foreign investment enterprise (the FIE)
- Existing production-type FIE expanding the business
scope to trading
- Sales branch set up by an FIE/FICE
- FIE/FICE created in Special Economic Areas (free trade
zone, export processing zone, and bonded logistic parks)
- FICE created elsewhere in the PRC.
Procedures to set up a trading
business in PRC General
To set up a FICE, the investor must have obtained a name
pre-approval and signed a lease agreement for an office,
acceptable by the local Administration of Industry and
Commerce for purpose of registration. The investor can be a
foreign corporation or company, an individual who is a foreign
national, or a resident of Hong Kong, Macau and Taiwan.
What particular information should be provided to set up a
FICE?
The investor must prepare a list of commodities together
with the commodity codes under the Harmonized System, intended
to be traded for purposes of obtaining approval.
To set up a commercial enterprise (the FICE), the basic
procedures are the same as setting up a manufacturing
business. The investors of the FICE must prepare an Articles
of Association and a feasibility study. In addition, the
following information should be submitted to the approval
authority for purposes of obtaining the approval:
|
Information required |
Wholesale business |
Retail business |
| 1 |
Lease agreement |
Yes |
Yes |
| 2 |
Name pre-approval |
Yes |
Yes |
| 3 |
Approval to set up |
Yes |
Yes |
| 4 |
Approval from
the local Administration
of Environmental
Protection |
No |
No, if it is
located in a shopping mall in general. |
| 5 |
Fire safety Certification |
No |
Yes, since the
public can have access to the shops. |
| 6 |
Minimum registered capital (in
general) |
RMB500,000 |
RMB300,000 |
| 7 |
Lists of the goods to be traded with HS
coding |
Yes |
Yes |
| 8 |
Information of legal representative and
other directors |
Yes |
Yes |
| 9 |
Board resolutions of the
investors |
Yes |
Yes |
| 10 |
Notarized company documents of the
investors |
Yes |
Yes |
The foreign investors should submit the above information
to the approval authority in the city or district its business
address is located. If the information is in order, the
approval authority will issue the approval letter within a
maximum period of three months. Note that if the approval
authority does not grant the approval, it should inform the
investors in writing and provide the reasons for not granting
the approval.
After obtaining the approval letter, the foreign investor
should apply to the local Administration of Industry and
Commerce for a business license within 30 days. After
obtaining the business license, the FICE comes into being and
the incorporation procedure for the FICE is completed.
Goods subject to special
regulations Separate administrative
licensing is required for the domestic distribution of certain
goods. In addition, the amount for registered capital for the
distribution of those goods may be bigger than a normal FICE.
|
Type of Goods for Domestic
Trading |
Approval authority |
| I |
Books, newspaper and
magazines |
State Administration of Press and
Publication |
| II |
Pharmaceutical products |
State Administration of Food and
Drugs |
| III |
Possessed oil |
Ministry of
Commerce; and Local Public Security Bureau |
| IV |
Audio-video products |
Ministry of
Culture |
Commodity Trading Rights in
China The Chinese government
liberalized the availability of the trading rights to import
and export goods from China (foreign trade rights) on July
2004. Early in June 2004, the Chinese government also lifted
its restriction on foreign investment in the distribution
service sectors. Foreign investors now can carry on foreign
trade and provide wholesale and retail distribution services
in China. The following is a brief introduction on the scope
and contents of the trading rights in China.
If a
Chinese company does not have the import export right, it does
not have any customs declaration rights. All production type
foreign investment enterprises acquire the import export right
and declaration rights after obtaining the approval
certificate and completing the customs registration.
Production-type FIEs have the right to import materials for
own use and export self-produced goods. They cannot import or
export the goods without performing any processing activities,
or act as third party distributors.
International
couriers or transportation companies in China have the right
to declare goods for their principles. However, they are not
allowed to do import and export trading because they do not
possess the trading rights. Furthermore, the declaration right
is limited in that they cannot declare goods for behalf of
those who are not the parties to the transport service
agreement.
Professional customs declaration companies
have the right to declare goods for their clients. They can
declare goods at the customs as independent service providers.
However, their scope of activities is limited to provide
customs declaration services. They cannot be engaged in import
and export trading activities in that they do not have the
trading rights.
Goods imported to China or exported out
of China are classified into the prohibited category,
restricted category, or freely traded category. Foreign
trading rights are subject to restrictions. Those who acquire
the foreign trade right are not allowed to import or export
goods of prohibited category, or deal with goods that are
banned under the law. Goods bearing fake trademarks or
firearms for example. In addition, the foreign trade right is
subject to the compliance with the license requirements for
imported and exported goods belonging to the restricted
categories.
The trading right should also include the
distribution rights, which can further be divided into
wholesale distribution right and the retail distribution
right. As from December 2004, foreign investors can set up
wholly foreign own commercial enterprises to deliver services
in the capacity of wholesaler or third party distributor or
commission agents. However, the distribution right is not
without limitations.
The foreign invested commercial
enterprise does not have the distribution right for all types
of commodities. To distribute certain specific goods, either
the wholesaler or the retailer needs to obtain the commodity
trading right from the PRC administrative body. Goods in China
are also classified into the following categories: goods
subject to state trading (such as silk and tea), goods subject
to designated trading (such as steel and natural rubber), and
general goods. For example, the right to wholesale
distribution of processed oil is not available to foreign
invested commercial enterprise until December
2006.
There is a requirement of administrative
licensing for some commodity trading rights. In the case of
retail distribution of books, newspaper and magazines, the
retailer must obtain administrative approval to get an
operating license for distribution of books, newspapers and
magazines. Therefore, it is not sufficient for the foreign
investment enterprise to have the business license alone. It
must also obtain an operating license for the specific goods.
The same licensing requirement applies to the distribution of
pharmaceutical products, audio video products, food products,
and cosmetics.
To sum up, the trading right in Chinese
contexts has the following scope and contents: the import and
export rights (foreign trade rights), declaration rights,
wholesale distribution rights, retail distribution rights, and
commodity trading rights. If one has not got any one of those,
he or she cannot carry on one-stop shop trading activities in
China.
A table may help
illustrate the difference between trading right and
declaration right
| Foreign invested
wholesale commercial Enterprise |
Yes, it can do
wholesale business, import and export own goods and
third party goods |
Yes, but limited to
the goods they buy and sell it their own
name |
| Foreign invested
retail commercial Enterprise |
Yes, it can do
retail business, import goods for own retail sale and
export domestically purchased goods |
Yes, but limited to
the goods they buy and sell it their own name |
| Foreign (or import
and export) trade corporation |
Yes, it can import
and export own goods and third party goods, but does not
have domestic distribution rights |
Yes, but limited to
the goods they buy and sell it their own name
distribution rights |
| Production type
FIE |
Yes, but limited to
importing materials and exporting own made
goods |
Yes, but limited to
material imported for own use and export own made
goods |
| International
transportation company |
No |
Yes, but limited to
the goods of the shippers |
| Professional
declaration agency company |
No |
Yes, provide
declaration services to any party who has the foreign
trade right. |
Extracts of this Article are
published by Hong Kong Federation of Industries in
2004. |
