This article is intended to provide a general guide to the subject matter. Specific advice should be sought about individual circumstances. Further information or advice may be obtained from Linklaters & Paines, Hong Kong office, 14th Floor, Alexandra House, Chater Road, Hong Kong; telephone: (852) 2842 4888; fax: (852) 2810 8133; contact David Mullarkey or Jeremy Parr.
The following article examines the background to foreign involvement in retailing in the PRC.
Access to the PRC retail market was previously restricted. Foreign companies were not allowed to establish direct retail outlets in the PRC. Foreign investors were encouraged to establish export-oriented businesses to earn foreign exchange, and the business of importing and selling foreign consumer goods in the PRC market was largely reserved for PRC state-run, import-export corporations. Generally, if foreign businesses wished to sell products in the PRC, they would have to go through such import-export corporations or PRC wholesalers and distributors.
In the second half of 1992, there was a relaxation in the government policy towards the conduct of retail businesses by foreign investors. The State Council issued an internal document in consultation with the then Ministry of Commerce (now renamed the Ministry of Internal Trade), titled "Foreign Investment in Retailing Provisions". These provisions deal with the establishment of a retail business through the employment of a joint venture vehicle. In conjunction with the implementation of the provisions, the PRC government has designated 11 cities and economic zones for the conduct of an "experiment" in the establishment of retail joint ventures.
In early 1994, the Ministry of Internal Trade announced two broad directions in relation to further reform and modernisation of the retail sector in the PRC. These are:-
- the promotion of chain store operations with foreign involvement by way of capital and management know-how contribution. "Chain store" includes restaurants, fast food outlets, convenience store - supermarkets and other types of stores typically operating under this structure;
- the encouragement of domestic commercial enterprises with good financial standing in large and medium size cities to participate in the development of the chain store concept.
In addition, the Ministry of Internal Trade announced at the end of December 1994 that:-
- the PRC is to allow foreign involvement in certain sectors of wholesaling activities, although no further detail was given;
- the government intends to designate more geographical areas where the "experiment" in retail joint ventures can be conducted.
The chain store concept has been strongly promoted lately, but recent indications are that the controls over the retailing sector may not be substantially lifted for the foreseeable future. In the Interim Provisions on the Guidance of the Direction of Foreign Investment recently issued in June 1995, retailing and wholesale activities were listed under a category of restricted activities requiring approval from the central authorities as well as from the local authorities. Retail ventures not obtaining the requisite approvals will be liable to be revoked.
Further information or advice may be obtained from Linklaters & Paines, Hong Kong office, 14th Floor, Alexandra House, Chater Road, Hong Kong; telephone: (852) 2842 4888; fax: (852) 2810 8133; contact David Mullarkey or Jeremy Parr.