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Pursuant to the
commitment China made to the WTO members, the Chinese
government promulgated on 16th April 2004 "the Administrative
Measures of the Commercial Sectors for Foreign Investments".
The Administrative Measures axes the requirement for the
qualification of the foreign investor, the amount of minimum
registered capital for the foreign invested enterprises, and
the restriction on geographic locations, quantity, and
percentage of foreign ownership. Within this year, foreign
investors will have access to Chinese domestic market in all
aspect of wholesale and retail distribution.
1. What is the
effective date for the newly promulgated "Administrative
Method of the Commercial Sectors for Foreign Investments"
?
The Administrative Measures shall take effect on
1st June 2004. "The Experimental Measures for Foreign Invested
Commercial Enterprises" promulgated in June 1999 shall cease
to have effect on the same date.
2. What business
activities can the foreign invested commercial enterprises be
engaged?
The business activities to be engaged by
foreign invested commercial enterprises are:
1. Commission
agent: acting as distributors for merchandise goods, brokers
or auctioneers, or third party wholesale distributor selling
goods for a fee under contracts, and the provision of related
subordinated services;
2. Wholesaling: the sales of goods
to retailers, industrial users, institutions, or the sale of
goods of other wholesalers, and the provision of related
subordinated services;
3. Retailing: the sale of consumer
goods to individual or groups at fixed locations, or via
television, telephone, post, internet, vending machines, and
the provision of related subordinated services;
4.
Franchising: the granting of trademarks, business names,
business models for purpose of rewards or royalties by way of
licensing agreements.
3. What is new in
the Administrative Measures about the relaxation on
geographical locations, quantity, and foreign share
ownership?
In respect of geographic locations,
Article 22 of the Administrative Measures provides that
foreign invested commercial enterprise engaged in retail
distribution should restrict its business activities in the
locations of the provincial capitals, the capital of
autonomous regions, the municipalities directly administered
by the State Council, the municipalities with independent
development plans, and the special economic zones before 11th
December 2004. All the above-mentioned geographic restrictions
will be lifted after 11th December 2004. Hong Kong service
suppliers engaged in the retail distribution sectors will be
given market access to all prefecture-level cities, and all
the county-level cities within the Guangdong province after
1st January 2004. The Administrative Measures provides that
with effect from 1st June 2004, all geographic restrictions
shall be lifted for foreign invested commercial enterprises
engaged in wholesale distribution.
The Administrative
Measures removes all existing restrictions imposed on the
number of commercial enterprises the foreign investor may set
up and the number of branches a foreign invested commercial
enterprise may set up throughout the country.
Hong Kong service suppliers are permitted to set up wholly
foreign owned commercial enterprises with effect from 1st
January 2004. The restrictions of relative foreign ownership
shall be removed on 11th December 2004. All foreign investors
are permitted to set up wholly foreign owned commercial
enterprises after 11th December 2004.
However, the
lifting of restriction on foreign ownership shall not apply to
those enterprises engaged in the distribution of books,
newspapers, magazines, vehicles (whose restriction will be
lifted on 11th December 2006), pharmaceutical products,
pesticides, mulching films, processed oil, foodstuffs,
vegetable oil, sugar, and cotton. A single foreign investor
with the number of shops in excess of 30 in the aggregate and
engaged in the distribution of the above-mentioned goods,
shall not have an ownership exceeding 49% in the foreign
invested commercial enterprise.
4. Will the
existing foreign invested enterprises be approved to engage in
wholesale and retail distribution activities as
well?
Yes, existing foreign invested enterprises are
permitted to engage in wholesaling and retailing business if
they amend their scope of business by submitting the
application to do so, in accordance with the provisions of
capital contributions as per requirement from the State
Administration of Foreign Exchange.
5. What are the
provisions governing the scope of businesses for the foreign
invested wholesale or retail enterprises?
The Administrative Measures provides
that the scope of businesses is as follows: -
| 1 |
Merchandise goods retailing |
Merchandise goods
wholesaling |
| 2 |
Imports of merchandise goods on
the list of own trading items |
Commission agent (except for
auctioneering) |
| 3 |
Sourcing domestic goods for
export |
Import and export of merchandise
goods |
| 4 |
Other related subordinated
services |
Other related subordinated
services |
In contrast, the
"Experimental Measures" promulgated in 1999 prohibits foreign
invested enterprises engaged in wholesale distribution from
buying imported goods not on the list of its own trading
items. That is inconsistent with the WTO rules. The
Experimental Measures also prohibits the foreign invested
enterprises engaged in wholesale distribution from acting as
agents for the buying and selling of goods. The Administrative
Measures lifts the requirement for local contents regarding
the procurement of goods, and allow foreign investors to carry
on business as commission agents.
6. Has the
Administrative Measures imposed other qualification
requirements for the investors?
The Administrative
Measures removes the requirement for the amount of average
annual sale and the net assets, except for the foreign
investors who are engaged in retail distribution of vehicles
and products subject to designated trading.
The
Chinese government shall announce the administrative measures
for the retail distribution of vehicle for foreign investors.
However, the new provisions for Closer Economic Partnership
Arrangement between Chinese Central Government and Hong Kong
government provide that the Hong Kong companies that have
already been granted Hong Kong service supplier certificates
are exempted from the qualification requirements.
Nature rubber, timber, plywood, wood, acrylic, and steel
are products subject to designated trading, as provided in
Article 16 of the Administrative Measure. Foreign owned or
domestic enterprises that have the right to trade those
products should have a minimum registered capital of RMB10
million, and have a track record of engaging in import and
export trading for no less than 2 years.
7. What is the
requirement for the registered capital of the foreign invested
commercial enterprises?
According to the
Experimental Measuress promulgated in 1999, the amount of
minimum registered capital for foreign invested commercial
enterprises is RMB 80 million (for wholesale business) and RMB
50 million (for retail business).
According to Aricle
7 in the Administrative Measures, the amount of minimum
registered capital for foreign invested commercial enterprises
shall be RMB 0.5 million (for wholesale business) and RMB 0.3
million (for retail business) in accordance with the PRC
Companies Law. The new Administrative Measures has given
foreign investors national treatment in respect of the amount
of minimum registered capital, except for the following
business activities: foreign invested enterprises engaged in
the wholesale distribution of books, newspapers, and magazines
shall have a minimum registered capital of RMB 30 million,
foreign invested enterprises engaged in the retail
distribution of the same shall have a minimum registered
capital RMB 5 million.
8. Is there any
timetable on the market access to specified
goods?
In respect of time restrictions imposed on
market access to certain specified goods that are related to
the state economic planning and the livelihood of the Chinese
people, the Administrative Measures adheres to the commitment
China has made to WTO members.
Foreign invested
enterprises engaged in the wholesale distribution shall not
deal in pharmaceutical products, pesticides, and mulch films
before 11th December 2004, and shall not deal in chemical
fertilizers, possessed oil and cruel oil before 11th February
2006. Foreign invested enterprises engaged in the retail
distribution shall not deal in pharmaceutical products,
pesticides, mulch films, and possessed oil before 11th
December 2004, shall not deal in fertilizers before 11th
December 2006.
Foreign invested enterprises
engaged in wholesale distribution shall not deal in salt and
tobacco. Those engaged in retail distribution shall not deal
in tobacco.
9. Are there any
additional requirements for the distribution of specified
goods?
Foreign invested enterprises engaged in the
distribution of books, newspapers, and magazines should
acquire an "operating license for printed materials" and meet
the requirement for the minimum registered capital. Those
engaged in the retail distribution of processed oil at
gasoline stations and drugs, shall acquire the "operating
license for processed oil" and the "operating license for
pharmaceutical products" in accordance with the requirements
of the administrative rules as promulgated by the
State.
10. How do the
foreign investors formulate their action plans to enter into
the Chinese wholesale and retail market?
As from 1st
June 2004, foreign investors are permitted to set up wholesale
or retail operations in the form of Sino-foreign equity or
cooperative joint venture enterprises. As from 11th December
2004, they have the option to turn those JVs into wholly
foreign owned enterprises by buying out the shares of the
Chinese party. Those Hong Kong investors who have been granted
the certificate of Hong Kong service suppliers can set up
wholly foreign owned enterprises starting from 1st June 2004.
In addition, foreign investors may accelerate the speed to
establish their PRC market presence by acquiring the interest
in existing wholesale or retail business in the
PRC. |
