Opportunities as a result of China s WTO accession

Opportunities as a result of China's WTO accession

The regulatory environment will improve after WTO accession. China's commitments to the WTO in relation to the opening of the retail sector will eventually remove some of the restrictions that still limit market access to foreign retailers. In response to the WTO rules and in an effort to honour China's WTO commitments, the State Development Planning Commission, the State Economic and Trade Commission and the Ministry of Foreign Trade and Economic Cooperation promulgated a new Catalogue of Industrial Guidance for Foreign Investment on 31 March 2002. This sets out the schedule for the opening of the retail sector in line with China's WTO commitments. According to the Catalogue, restrictions on foreign participation in China's retail sector will be phased out as per the following schedule:

Foreign investment is permitted, except for books, newspapers, magazines, pharmaceuticals , pesticides, mulching films , fertilizers and processed oil.
A 50 per cent foreign equity share will be permitted and joint ventures will be permitted to deal in the retailing of books, newspapers and magazines no later than 11 December 2002.
Foreign majority ownership will be permitted no later than 11 December 2003.
Solely foreign-owned operations will be permitted and allowed to engage in the retailing of pharmaceuticals, pesticides, mulching film and processed oil no later than 11 December 2004.
Retailing of fertilizers by foreign-invested retailers will be permitted no later than 11 December 2006. Foreign majority ownership will not be permitted for those chain stores that engage in the following products and have over 30 outlets: motor vehicles (the restrictions on which will be removed no later than 11 December 2006), books, newspapers, magazines, pharmaceuticals, pesticides, mulching films, processed oil, fertilizers, grains, vegetable oils, sugar, tobacco and cotton.

The above schedule shows future opportunities for foreign investment in the retail sector. The macro opportunities are obvious “ increasing consumer affluence in both urban and rural areas and the huge consumer base of 1.3 billion people. The micro opportunities are many “ different options of entry such as joint venturing, merger, acquisition and wholly-owned subsidiary. A short- term option while the restrictions on wholly foreign-owned operations are still in force is to set up joint ventures in designated locations. This will offer immediate market access and incur minimal risk in terms of financial engagements. There are a number of Chinese retailers that have advantages such as retail sites, existing customer base, understanding of local conditions and brand recognition, while being disadvantaged by the lack of sufficient funding, management know-how, marketing expertise and retailing technology. These retailers can also be targets of mergers or acquisitions. For those who would prefer to have a solely-owned operation, the only option is to wait until 2004.