Administrative Measures Governing Foreign Investment in
Commercial Sectors
On 16 April 2004, the Ministry of Commerce ("MOC")
promulgated a new regulation, namely, The Administrative Measures
Governing Foreign Investment in Commercial Sectors ("the
Administrative Measures"). Foreign investor is permitted
to set-up wholly owned enterprise engaging in commission agency,
wholesaling or retailing businesses in China with a much lower
threshold requirement effective from 11 December 2004. Furthermore,
geographical restrictions on the locations for setting up
the foreign-invested wholesaling and retailing enterprises
will be abolished after 11 December 2004.
I. Definition of Foreign-Invested Commercial Enterprises
("FICE")
Article 3 of the Administrative Measures defines FICE as
enterprises established by foreign investors to engage in
commission agency services, wholesaling, retailing or franchising
businesses. Please note that although franchising is included
as one of the permitted scope of businesses for FICE, article
19 of the Administrative Measures requires foreign investors
engaging in franchise licensing to comply with other related
laws promulgated by the government. It is therefore expected
that more specific regulations on franchising will be released
very soon. Table 1 summarizes the scope of business permitted
to FICE by the Administrative Measures.
Table 1: Permitted Scopes of Business of FICE
Retailing |
- Retailing
of merchandise
- Import of merchandise on its own account
- Procurement of domestic merchandise for export
- Other auxiliary services |
Wholesaling |
- Wholesaling of merchandise
- Commission agency (except auction)
- Import and export of merchandise
- Other related auxiliary services |
Franchising |
- Granting of franchise
to third parties to operate chain stores |
II. Conditions for establishment of FICE
Article 7 of the Administrative Measures prescribes that
the following conditions must be fulfilled for setting up
a FICE:
1. the amount of registered capital must satisfy the requirements
of the China Company Law (i.e. the minimum registered capital
for a wholesaling enterprise is RMB500,000 and a retailing
enterprise is RMB300,000 under the current Company Law);
2. the amount of its registered capital and total investment
must satisfy the requirements applicable to a foreign-invested
enterprise; and
3. the operating period cannot exceed 30 years (for FICE
established in the central-western regions, the operating
period cannot exceed 40 years).
For FICE engaged in chain store operation, the following
additional conditions must also be fulfilled:
1. if the application is submitted together with the application
for establishment of the FICE, it must satisfy the requirements
for city and commercial development;
2. if the application is submitted after establishment of
the FICE, apart from the conditions stated above, the applicant
must also ensure that it has paid up its registered capital
and passed the annual joint inspection conducted by the government
authorities.
III. Examination and Approval Procedures
Foreign investor should submit project proposal, feasibility
study report and the related application forms in connection
with the establishment of a FICE to the branch of MOC at provincial
level for preliminary examination and approval. The application
will then be submitted to MOC at central government level
for approval within one month after the date of receipt of
all the relevant materials from the applicant. MOC will decide
whether or not the application should be approved within 3
months after the receipt of the materials. Please note that
MOC may delegate its authority to the relevant branch at provincial
level to approve those applications involving smaller scale
of operations or smaller number of retail shops.
IV. The Administrative Measures
1. Article 18 of the Administrative Measures states that
foreign investors operate chain stores with more than 30 shops
and retail commodities including books, newspapers, magazines,
motor vehicles (shall be abolished as from 11 December 2006),
pharmaceutical products, pesticides, mulching films, chemical
fertilizers, processed oil, grain, vegetable oil, sugar and
cotton of different brand names supplied by multiple suppliers
can only set up sino-foreign co-operative joint venture or
equity joint venture with maximum equity ownership of 49%.
2. Prior to 11 December 2004, retailing FICE and their retail
shops can only be set up in the provincial capitals, the capitals
of autonomous regions, the municipalities directly under the
administration of the central government, the municipalities
with independent planning power and the special economic zones.
After 11 December 2004, such geographical restriction will
be abolished.
3. FICE engaged in distribution books, newspapers and periodicals,
retailing of processed oil in petrol stations, sale of pharmaceutical
products, motor vehicles has to comply with other related
rules and regulations promulgated by the Chinese government
authorities.
4. Other limitations imposed on specific industries:
(i) FICE engaged in wholesaling business is permitted to trade
in pharmaceutical products, pesticides and mulching films
after 11 December 2004 and is permitted to trade in chemical
fertilizers, processed oil and crude oil after 11 December
2006.
(ii) FICE engaged in retailing business is permitted to trade
in pharmaceutical products, pesticides, mulching films and
processed oil after 11 December 20004 and is permitted to
trade in chemical fertilizers after 11 December 2006.
(iii) FICE engaged in wholesaling business is not permitted
to trade in salt and tobacco. FICE engaged in retailing business
is not permitted to trade in tobacco.
V. Special Provisions Relating to Hong Kong and Macau
Investors
Article 25 contains special provisions governing Hong Kong
and Macau investors. Commencing from 1 January 2004, Hong
Kong and Macau service suppliers as certified under CEPA are
permitted to establish wholly owned FICE in the country. The
geographical restrictions on retailing enterprises established
by Hong Kong and Macau service suppliers will be expanded
to include all regional grade municipalities and county grade
municipalities in the Guangdong province.
Hong Kong and Macau investors can set up FICE for retailing
of motor vehicles provided that the following conditions are
met:
1. average annual turnover for the three years prior to the
application is greater than USD100 millions;
2. total assets value for the year prior to the application
is greater than USD10 millions; and
3. the minimum registered capital of the FICE is greater
than USD10 millions (USD6 millions if the FICE is established
in the central-western region).
Chinese nationals who are permanent residents of Hong Kong
or Macau are permitted to establish individual industrial
or commercial units to engage in commercial retailing activities
(excluding franchising) but the floor area of the retail shop
cannot exceed 300 square meters.
Full articles of Administrative
Measures Governing Foreign Investment in Commercial Sectors
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