Business - What are the rules for establishing foreign-funded commercial enterprises in China?

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Business - What are the rules for establishing foreign-funded commercial enterprises in China?

Post by inbeijing » Fri Jul 11, 2014 3:53 pm

Business - What are the rules for establishing foreign-funded commercial enterprises in China?

To expand the opening-up drive, to promote the reform and development of Chinese commercial enterprises and construction of the domestic market, and to facilitate the experiments with the utilization of foreign investment in the commercial sector, the State Economic and Trade Commission and the Ministry of Foreign Trade and Economic Cooperation have worked out and promulgated Experimental Measures for Foreign-funded Commercial Enterprises. Currently, the Measures only permit foreign companies and enterprises to set up with Chinese companies and enterprises Chinese-foreign equity and contractual joint venture commercial enterprises in China. Wholly foreign-invested commercial enterprises are not allowed yet. Major stipulations are as follows:

I. The equity and contractual joint venture commercial enterprises to be established must comply with the commercial development plan of the locale city and should have the capacity to introduce world-advanced marketing techniques and management experience, advance local commercial modernization, propel exportation of domestic products and produce good economic and social results.

II. As stipulated by the State Council, the areas where equity and contractual joint venture commercial enterprises may be established are limited temporarily to provincial capital cities, capitals of autonomous regions, municipalities directly tender the jurisdiction of the central government, cities listed as independent units in the state plan, and special economic zones (hereafter referred to as pilot areas).

III. Investors in commercial joint ventures should meet the following requirements:

1. Foreign joint ventures or main foreign joint ventures (hereafter referred to as foreign joint ventures) should have comparatively high economic strength, advanced management experience and marketing techniques in commercial operations, broad international distribution channels, sound credit and good performance. In addition, they should help promote Chinese exports through the establishment of their joint ventures.

Foreign joint ventures applying foe' the establishment of joint ventures operating retail business should record all average annual sales volume of US$2.0 billion or more in the three years prior to the year of the application and should have assets of no less than US$200 million in the year prior to the year of the application.

Foreign joint ventures applying for the establishment of joint ventures operating wholesale business should record an average annual wholesale volume of US$2.5 billion or more in the three years prior to the year of the application and should have assets of no less than US$300 million in the year prior to the year of the application.

2. Chinese joint ventures or main Chinese joint ventures (hereafter referred to as Chinese joint ventures) should be distribution enterprises with comparatively high economic strength and operation capacities. The amount of their assets in the year prior to the application should be more than 50 million yuan (30 million yuan for central and western regions). For Chinese joint ventures who are commercial enterprises, the average annual sales volume in the three years prior to the application should be no less than 300 million yuan (200 million yuan for central and western regions). For foreign trade enterprises, the average annual self-operated export and import volume should be no less than US$50 million (exports should amount to no less than US$30 million).

IV. Equity and contractual joint venture commercial enterprises should meet the following requirements:

1. Compliance with the relevant Chinese laws, statutes and regulations;

2. Compliance with the commercial development plan of the locale city;

3. The registered capital of the joint ventures engaged in retail business should be no less than 50 million yuan, and for central and western regions, no less than 30 million yuan. The registered capital of the joint ventures engaged in wholesale business should be no less than 80 million yuan, and for central and western regions, no less than 60 million yuan.

4. For equity and contractual joint venture commercial enterprises operating in the form of more than three chain stores (excluding neighborhood, specialized and exclusive-right stores), the proportion of the Chinese parties' investment should reach a minimum of 51 percent. For chain equity and contractual joint venture commercial enterprises which record a good performance, whose foreign joint ventures have purchased Chinese products in large quantities, and which can help expand the export of Chinese products through the international distribution channels of their foreign joint ventures, the foreign joint ventures involved are allowed to hold a controlling share upon approval by the State Council.

For equity and contractual joint venture commercial enterprises with three or fewer chain stores and neighborhood, specialized and exclusive-right chain stores, the Chinese joint ventures should own no less than 35 percent of the total investment.

For wholesale equity and contractual joint venture commercial enterprises (including concurrent retail and wholesale businesses), the Chinese joint ventures should own more than 51 percent of the total investment.

5. Branches of equity and contractual joint venture commercial enterprises are confined to the form of chain stores directly invested and operated by the Chinese and foreign parties. Other forms, such as free and franchised chain operations, are not allowed for the time being.

6. The period of operation must be less than 30 years, and for central and western regions, less than 40 years.

7. Foreign joint ventures who sign contracts with equity and contractual joint venture commercial enterprises on the use of trademarks and names or technology transfer, the total mount of relevant charges drawn by the foreign joint ventures cannot exceed 0.3 percent of the current year sales value (excluding value-added tax) of the commercial enterprises, and the withdrawal period cannot exceed 10 years.

V. Business Scope

Retail

1. Retail operations (including commissioned and postal retail);

2. Organization of domestic products for export;

3. Self-initiated commodity export and import; and

4. Pertinent supporting services.

Wholesale

Wholesale of domestic products, domestic wholesale of self-initiated imports and organization of domestic products for export.

Equity and contractual joint venture commercial enterprises that are engaged in retail business can handle wholesale upon approval, but cannot conduct agent business for import and export.

VI. Examination and Approval Procedures

1. The Chinese joint venture should submit the feasibility study report (in place of project proposal) and relevant documents to the economic and trade commission of the locale pilot area, which will handle the report in cooperation with the responsible domestic trade department and forward it to the State Economic and Trade Commission in accordance with stipulated procedures. On receipt, the State Economic and Trade Commission will examine the report and decide whether to approve it or not after consultation with the Ministry of Foreign Trade and Economic Cooperation.

2. After the feasibility study report (in place of project proposal) is approved, the foreign trade and economy department of the locale pilot area will submit, in accordance with stipulated procedures, the contract and articles of corporation of the applicant joint venture to the Ministry of Foreign Trade and Economic Cooperation for approval.

3. The approved joint venture should go through registration formalities with the State Administration for Industry and Commerce within a month of the issuance of the Approval Certificate.

4. For existent equity and contractual joint venture commercial enterprises that apply for concurrent wholesale business, opening of branches, or change of partners, the Ministry of Foreign Trade and Economic Cooperation will examine such applications and decide whether to approve or not after consultation with the State Economic and Trade Commission. Other alterations should be examined and sanctioned by the previous examination and ratification authorities, in accordance with existent laws and regulations concerning foreign investment.

VII. Others

1. State-owned commercial enterprises in equity and contractual joint venture commercial projects shall put their physical and non-physical assets to scientific and just assessment by an evaluation agency recognized by the state assets management authorities in accordance with Administrative Measures on the Evaluation of State-owned Assets. The result of an evaluation confirmed by the state assets management authorities at the provincial level or higher may be used as the basis for the pricing of the state assets to be invested.

2. The equity and contractual joint venture commercial enterprises that deal in commodities subject to special state regulations, or in import and export commodities subject to quotas or permit requirements should go through examination and approval procedures in accordance with relevant regulations.

3. The total value of import commodities of an equity or a contractual joint venture commercial enterprise cannot exceed 30 percent of its current year sales value.

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