The PRC Ministry of Commerce issued the Administration of Foreign Investment in Commercial Sectors Procedures (the “Procedures”) on 16 April 2004.

The Procedures represent the comprehensive amendment of the 1999 Pilot Projects for Commercial Enterprises with Foreign Investment Procedures. According to the new Procedures, foreign-invested commercial enterprises may be established to engage in business activities in the commercial sectors. These have been established in conjunction with China's commitments for entry into the WTO. The Procedures clarify the boundary, timing and procedures for opening up commercial sectors to the outside world, and lower the restrictive qualification requirement for Chinese and foreign investors, as well as the registered capital requirements of foreign-invested commercial enterprises. Under these Procedures, market access has been broadened and approval procedures simplified. The Procedures also lift restrictions on the location of foreign-invested commercial enterprises engaging in wholesaling.

The new regulations have application across the following five activities:
A. Retailing - i.e. selling goods and related services to individual persons from a fixed location, as well as through TV, telephone, mail order, Internet, and vending machines;
B. Wholesaling - i.e. selling goods and related services to companies and customers from the industry, trade or other organizations;
C. Representative transactions on the basis of provisions (agent, broker, auctioning);
D. Franchising;
E. Import/Export, distribution and retailing by existing manufacturing companies;

The Procedures also set forth detailed provisions for the establishment requirements of foreign invested commercial enterprises. These are summarized as follows:
A. Permitted investment forms including Sino-foreign Equity Joint Venture Enterprise, Sino-foreign Cooperative Joint Venture Enterprise and the Wholly Foreign Owned Enterprise.
The existing foreign invested company in China can also invest in commercial industry, but shall be additionally subject to the Provisional Regulation of Domestic Investment by Foreign Invested Company.
B. Minimum Registered Capital：Foreign investors will enjoy national treatment in setting up trading companies with minimum registered capital in accordance with the Company Law of China as follows:
(a) RMB 500,000 (about USD 60,000) for a wholesale Commercial Company;
(b) RMB 300,000 (about USD 36,000) for a retail Commercial Company.
C. Location Restriction
Before December 11, 2004, the location for the retail Commercial Company, including that of its stores, shall be limited to the capital cities of provinces, autonomous regions or municipalities. After December 11, 2004, such limitation will be abolished. There will be no location restrictions for the wholesale Commercial Company.
D. Restrictions on Invested Industries
The permitted business scope for Retailing enterprises are retailing, import of merchandise it sells, sourcing and purchasing of domestic goods for export, and other related services. Wholesaling enterprises can engage in merchandise wholesaling, commission agency (except for auctions), import & export of merchandise and related services.
The restrictions apply to some specific products such as books, periodicals, newspapers, automobiles, medicines, salt, and agricultural chemicals such as pesticides, crude oil and petroleum.

The PRC government will soon put forth the implementation rules for the Procedure, which, together with the Procedure itself, will have a significant impact on the PRC business environment. These impacts will be positive for foreign-invested companies, who will enjoy broader market access.

- Alan Zhang