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New Rules on Foreign Investments in Retail, Wholesale
and Franchise Industries
In probably the most sweeping change in Chinese law since China's
accession to the WTO, the Ministry of Foreign Commerce has published
new rules relating to foreign-invested enterprises in the commission
agency, wholesale, retail and franchise industries. These new rules,
released on April 19, 2004, are known as the Administration of Foreign
Investment in Commercial Sectors Procedures.
Starting December 11, 2004, foreign investors will be able to establish
wholly foreign owned enterprises (WFOE's) in any of the above industries
throughout China.
The real surprise under the new Procedures is that there will no
longer be the burdensome investment capital requirements for foreign
investors. Foreign investors will simply need to comply with the
capital requirements under the existing Company Law and related
rules that are applicable to all domestic companies.
Under the new Procedures, retail WFOE's will be able to conduct
the following activities:
| (1) |
Retail business activities (including retail sales
through mail order, telephonic order, e-commerce and vending
machines); |
| (2) |
Importing goods dealt in by the WFOE's; |
| (3) |
Procurement of domestic products for export; and
|
| (4) |
Other related auxiliary businesses. |
The Procedures also provide specific rules for those retail WFOE's
seeking to open retail store operations, with guidelines relating
to the number, area and location of such store operations.
Under the new Procedures, wholesale WFOE's will be able to conduct
the following activities:
| (1) |
Wholesale; |
| (2) |
Commission agency (excluding auction); |
| (3) |
Import and export; and |
| (4) |
Other related auxiliary businesses. |
The Procedures relating to franchise WFOE's are very general in
nature, stating only, "Foreign-invested commercial enterprises
may authorize other parties to open stores in the form of a franchise"
and requiring such WFOE's to comply with "separate provisions
of the State" relating to franchise operations. Presumably,
such provisions will be forthcoming later this year.
For further information on these new Procedures and how they might
affect your business, please contact any member of the DWT's China
Practice Group.
Published by DWT's China
Practice Group
This China Practice Alert is a publication of the China Practice/Shanghai
Office of Davis Wright Tremaine LLP. Our purpose in publishing this
Alert is to inform our clients and friends of recent legal developments
in China. It is not intended, nor should it be used, as a substitute
for specific legal advice as legal counsel may only be given in
response to inquiries regarding particular situations.
Copyright © 2004, Davis Wright Tremaine
LLP.
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