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Administrative Regulations on Foreign Investment in the Commercial Sector

Foreign Investment 

外商投资商业领域管理办法  

Administrative Regulations on Foreign Investment in the Commercial Sector (the Regulations)

Issued: April 16, 2004

Effective: June 1, 2004

Issuing Authority: MOFCOM

Main Contents: The Regulations, which replace the Pilot Procedures for Foreign Investment in Commercial Enterprises, significantly relax the requirements for the establishment of commercial foreign-invested enterprises (Commercial FIE), partially remove geographic restrictions, and simplify approval procedures.

According to the Regulations, Commercial FIE  refers to FIEs engaging in commission agency, wholesaling, retailing or franchising activities, and the manner of conducting retailing activities is specified in detail.   

The minimum registered capital has been substantially reduced, and investor qualification requirements (pertaining to assets and volume of sales) for both the Chinese and the foreign parties have been removed.  However, foreign investors must have good standing and credit, and must not have violated any Chinese laws, rules, or regulations. 

In addition, the Regulations impose no limitations regarding the percentage of equity interest for the foreign and Chinese parties to joint venture Commercial FIEs, though wholly foreign-owned Commercial FIEs will not be permitted before December 11, 2004.  A foreign investor who has opened a total of more than 30 stores will not be allowed to hold more than 49 percent equity interests in a joint venture Commercial FIE if the goods it sells include books, mulching films, fertilizer, processed oil, grain, vegetable oil, etc. which are of various brands and from different suppliers.

Under the Regulations, a retailing FIE will be allowed to engage in the retail of merchandise, to import merchandise for its own use, to procure domestic products for exportation and to carry out other auxiliary activities.  A wholesaling FIE may carry out wholesaling, commission agency, import and export, and other auxiliary activities.  There are, however, certain restrictions related to Chinas WTO commitments.

Commercial FIES may directly establish and operate new stores, and authorize others to open franchise stores.  The number of stores that a Commercial FIE may set up is no longer limited.  The opening of stores must comply with he provisions regarding city development and commercial development of the city, where the store is to be located.  If an existing Commercial FIE applies to open new stores, it must have passed the annual joint inspection and have completely paid in its registered capital.

Previous geographical limitations for wholesaling FIEs have been lifted, and such restrictions for retailing FIEs will be eliminated from December 11, 2004.  The Regulations also greatly simplify the approval procedure by combining the approval of the feasibility study report and that of other required documents (including the joint venture contracts and articles of association) into a single process, and the documents necessary for the establishment of Commercial FIEs and for the opening of stores are provided.

MOFCOM is the competent approval authority, though under certain conditions the provincial counterpart of MOFCOM will be given the authority to grant approvals. 

Prepared from Coudert Brothers China Newsletter. For more information, please send your e-mail to cbchinanews@coudert.com