New laws that will come into effect on 11 December 2004 will significantly liberalise foreign participation in retail and wholesale activities in China. The new measures will significantly relax the requirements for establishing foreign invested enterprises ("FIEs") in wholesale, retail and related sectors, partially remove geographic restrictions and simplify approval procedures. The measures have been introduced to comply with China's continuing WTO obligations to liberalise its trading policies.

The new measures will affect the following types of activities :-

Import/export, distribution and retailing by existing FIEs
Import/export by bonded zone trading companies

Perhaps most significant is the relaxation of the establishment requirements for FIEs in the above areas. The minimum registered capital required has been substantially reduced from RMB50 million for retail companies and RMB80 million for wholesale companies to RMB300,000 and RMB500,000, respectively. Additionally, investor qualification requirements, in terms of both assets and volume of sales, have been removed.

The new measures impose no limitations regarding the respective percentage of equity interest for the foreign and Chinese parties to Sino-foreign joint ventures in the wholesale and retail sectors but wholly owned foreign enterprises in these areas will not be allowed prior to 11 December 2004. Foreign investors who have opened more than 30 stores will not be allowed to hold more than 49% of the equity in a Sino-foreign joint venture if the goods it sells include books, fertilizers, processed oils, grains and other such goods of varying brands and which are purchased from different suppliers.

FIEs that obtain approval under the new measures will be permitted to engage in the following types of business activities :-

Wholesale : wholesaling, commission agency, import & export and other similar activities

Retail : retailing, import of merchandise for its own use, procuring domestic goods for export and other similar activities

FIEs in the above areas will be able to directly establish and operate new stores or authorise the opening of franchise stores by third parties. There will no longer be any limitation on the number of stores an FIE is allowed to open. However, in order to receive approval for the opening of a new store the FIE must have passed its annual inspection and have completely paid up its registered capital.

The approval procedure has also been simplified with the combining of the approval of the feasibility study report with the approval of the other required documents into a single process. The Ministry of Commerce ("MOFCOM") will be the approval authority although under certain circumstances MOFCOM's provincial counterparts will have the authority to grant approvals

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