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Measures for the Administration of Foreign Investment in the PRC Commercial Sector
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Author：GETDD Date：2008-1-4
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Measures for the Administration of Foreign Investment in the PRC Commercial Sector
We hereby announce that the Measures for the Administration of Foreign Investment in the Commercial Sector have been considered and adopted at the Sixth Ministry Meeting of the Ministry of Commerce of the People's Republic of China and shall be implemented on June 1, 2004.
Bo Xilai, Minister of Commerce
April 16, 2004
Measures for the Administration of Foreign Investment in the Commercial Sector
Article 1. These measures are formulated in accordance with the Law of the People's Republic of China on Sino-foreign Equity Joint Ventures, the Law of the People's Republic of China on Sino-foreign Cooperative Joint Ventures, the Law of the People's Republic of China on Wholly Foreign Owned Enterprises [WFOE] and the Company Law, as well as other laws and administrative regulations, in order to further expand the opening of China and to perfect the construction of a market circulation system.
Article 2. Foreign companies, enterprises and other economic organizations or individuals (hereinafter referred to as "Foreign Investors") that establish foreign invested commercial enterprises to engage in business activities in China shall adhere to these measures.
Article 3. A foreign invested commercial enterprise shall mean a foreign invested enterprise that engages in the following business activities:
Commission Agency: Sale of the goods of others and related subordinated services pursuant to a contract and for a fee by sales agents, brokers, auctioneers or other wholesalers;
Wholesaling: Sale of goods and related subordinated services to retailers, to industrial, commercial and institutional users, and to other wholesalers;
Retailing: Sale of goods for individual or collective consumption and related subordinated services from a fixed location or via television, telephone, mail order, internet or vending machines;
Franchising: Grant of authority pursuant to contract for the use of a trademark, trade name, or business method, etc., in exchange for remuneration or franchising fees.
Foreign companies, enterprises and other economic organizations or individuals must establish a foreign invested enterprise in China to engage in the business activities stipulated in items (1), (2), (3) and (4) of the above clause.
Article 4. A foreign invested commercial enterprise shall adhere to the laws, administrative regulations and related rules of the People's Republic of China, and its legitimate business activities and lawful rights and interests shall be protected under the laws of China.
Article 5. The State department-in-charge of commerce shall supervise and administer foreign invested enterprises in the commercial sector and the business activities of foreign invested commercial enterprises in accordance with the law.
Article 6. The Foreign Investor in a foreign invested commercial enterprise shall possess high prestige and shall not have violated the laws, administrative regulations and related rules of China. The establishment of foreign invested commercial enterprises by Foreign Investors that possess relatively powerful economic strength, advanced commercial management experience and marketing technology, and an extensive international sales network is encouraged.
Article 7. A foreign invested commercial enterprise shall meet the following conditions:
Its minimum registered capital must comply with the relevant provisions of the Company Law.
It must comply with the relevant provisions on registered capital and total investment for foreign invested enterprises.
The term of operation of a foreign invested commercial enterprise in general shall not exceed 30 years and the term of operation of a foreign invested commercial enterprise established in the Central and Western Region in general shall not exceed 40 years.
Article 8. A foreign invested commercial enterprise shall meet the following conditions to open an outlet:
If applying to establish a foreign invested commercial enterprise and an outlet at the same time, the foreign invested commercial enterprise and the outlet shall conform to the relevant regulations concerning urban development and urban commercial development.
If applying to establish an additional outlet after receiving approval to establish a foreign invested commercial enterprise, the foreign invested commercial enterprise, in addition to meeting the requirements set forth in (1) above, shall meet the following conditions:
It shall have undergone and passed the annual inspection for foreign invested enterprises on time;
Its registered capital shall have been paid in full.
Article 9. Upon approval, a foreign invested commercial enterprise may operate the following business:
Foreign invested commercial enterprises engaged in retailing:
Retailing of merchandise;
Import of merchandise for its own operations;
Procurement of domestic products for export;
Other related accessory business.
Foreign invested commercial enterprises engaged in wholesaling:
Wholesaling of merchandise;
Commission agency (excluding auctioning);
Import and export of merchandise;
Other related accessory business.
A foreign invested commercial enterprise may authorize others to establish outlets by franchising.
Upon approval, a foreign invested commercial enterprise may engage in one or several of the above sales operations. The types of merchandise in which the foreign invested commercial enterprise deals shall be set out in the content of the contract and articles of association related to business scope.
Article 10. The establishment of a foreign invested commercial enterprise and its outlets shall be carried out in accordance with the following procedures:
The application and the examination and approval of the project, the feasibility study report and the establishment of a foreign invested commercial enterprise shall be carried out in one step.
Except as otherwise provided in sub-clauses (3) and (4) of clause (1) of this Article, the investors intending to establish in a new foreign invested commercial enterprise and an existing foreign invested enterprise applying to establish an outlet shall submit the application documents provided in Articles 12 and 13 to the provincial level department-in-charge of commerce where the foreign invested commercial enterprise is located. The provincial level department-in-charge of commerce, after completing its preliminary examination, shall forward the application to the Ministry of Commerce within one month of receipt of a complete application. The Ministry of Commerce shall decide whether or not to approve the application within three months from receipt of a complete application and, with respect to those approved for establishment, shall issue a Certificate of Approval for Enterprises With Foreign Investment or, with respect to those not approved, shall explain the reasons. The Ministry of Commerce may delegate its approval authority to the provincial level department-in-charge of commerce.
A foreign invested commercial enterprise engaged in retailing that opens an outlet in the provincial level administrative jurisdiction where it is located shall be examined and approved, and filed for the record with the Ministry of Commerce, by the provincial level department-in-charge of commerce, subject to the limits of its approval authority, provided the scope of business does not involve television, telephone, mail order, internet or vending machine sales or the merchandise listed in Articles 17 and 18 of these measures, and the following conditions are met:
The area of a single outlet does not exceed 3000 square meters and the total number of outlets does not exceed three, and the number of outlets in the same class opened by the foreign investor in China through foreign invested commercial enterprises does not exceed 30;
The area of a single outlet does not exceed 300 square meters and the total number of outlets does not exceed 30, and the number of outlets in the same class opened by the foreign investor in China through foreign invested commercial enterprises does not exceed 300.
Where the owner of the trademark or trade name used by an equity or cooperative joint commercial enterprise is an enterprise with domestic investment or a Chinese natural person, the Chinese party holds a controlling interest in the foreign invested enterprise, and the scope of business of the foreign invested commercial enterprise does not involve the merchandise listed in Articles 17 or 18 of these measures, the application for the establishment of the enterprise and the opening of outlets shall be approved by the provincial level department-in-charge of commerce, subject to its approval authority limits. Where an outlet is opened in another province, the opinions of the provincial level department-in-charge of commerce of the other province shall be solicited.
The provincial level department-in-charge of commerce shall not delegate its approval authority under sub-clauses (3) and (4) of clause (1) of this Article without a grant of authority from the Ministry of Commerce.
Article 11. Within one month from the date the investor receives the Certificate of Approval for Enterprises With Foreign Investment, it shall carry out registration procedures with the administration for industry and commerce.
Article 12. In applying to establish a foreign invested commercial enterprise, the following documents shall be submitted:
Application letter;
Feasibility study report jointly signed by each investor;
Contract, articles of association (only the articles of association for a wholly foreign owned commercial enterprise) and their appendices;
Letter of creditworthiness, certificate of incorporation (photocopy) and proof of identity of the legal representative (photocopy) of each investor; proof of identity shall be provided where the Foreign Investor is an individual;
Most recent annual audit report of each investor as audited by an accounting firm;
Valuation report on state owned assets to be contributed to the foreign invested equity and cooperative joint venture commercial enterprise by the Chinese investor;
Catalogue of merchandise to be imported and exported by the foreign invested commercial enterprise to be established;
List of members of the board of directors of the foreign invested commercial enterprise to be established and appointment letters for the directors issued by each investor;
Notice of Enterprise Name Pre-registration issued by the administrative department for industry and commerce;
Land use rights certificate (photocopy) for the land on which an outlet will be opened and (or) premises lease agreement (photocopy), except for outlets with a business area of less than 3000 square meters;
Explanatory letter issued by the local government department-in-charge of commerce in the place where the outlet will be opened stating that the outlet complies with the requirements on urban development and urban commercial development.
A power of attorney of the legal representative shall be issued where someone other than the legal representative will sign the documents.
Article 13. An existing foreign invested commercial enterprise applying to open an outlet shall submit the following documents:
Application letter;
Where amendment of the contract or articles of association is involved, the amended contract and articles of association shall be submitted;
Feasibility study report related to the opening of an outlet;
Resolution of the board of directors related to the opening of an outlet;
Most recent annual audit report of the enterprise;
Capital verification report of the enterprise (photocopy);
Certificate of incorporation (photocopy) and proof of identity of the legal representative (photocopy) of each investor;
Land use rights certificate (photocopy) for the land on which an outlet will be opened and (or) premises lease agreement (photocopy), except for outlets with a business area of less than 3000 square meters;
Explanatory letter issued by the local government department杋n-charge of commerce in the place where the outlet will be opened stating that the outlet complies with the requirements on urban development and urban commercial development.
A power of attorney of the legal representative shall be issued where someone other than the legal representative will sign the documents.
Article 14. Trademark or trade name license contracts, technology transfer contracts, management contracts, service contracts, etc., concluded by a foreign invested commercial enterprise shall be appended to the contract (appended to the articles of association of a wholly foreign owned commercial enterprise) and submitted for approval.
Article 15. A foreign invested commercial enterprise opening shops shall acquire land for commercial use by tender, auction, listing or other means in accordance with the provisions of relevant State laws and administrative regulations for the administration of land.
Article 16. A foreign invested commercial enterprise that deals in merchandise for which the State has special provisions and merchandise for import and export involving quotas and license controls shall carry out the procedures in accordance with relevant State regulations.
Article 17. A foreign invested commercial enterprise that deals in the following merchandise must comply with the provisions of these measures and shall also comply with the following provisions:
A foreign invested commercial enterprise that deals in books, newspapers and periodicals shall comply with the Measures for the Administration of Foreign Invested Enterprises for the Distribution of Books, Newspapers and Periodicals.
A foreign invested commercial enterprise that operates gas stations and engages in the retailing of processed oil shall have a stable supply channel for processed oil and comply with the local construction plan for gas stations. Its operating facilities shall comply with the existing standards and measurement and calibration procedures of the State, as well as the requirements on fire safety and environmental protection, etc. The Ministry of Commerce shall formulate specific implementing measures separately.
A foreign invested commercial enterprise that deals in pharmaceuticals shall comply with the relevant control standards for the sale of pharmaceutical products. The Ministry of Commerce shall formulate specific implementing measures separately.
A foreign invested commercial enterprise that deals in automobiles shall operate within its approved scope of business. The Ministry of Commerce shall formulate specific implementing measures separately.
Except as otherwise provided under Article 18 and this Article, the establishment of a foreign invested commercial enterprise for agricultural by-products and agricultural production materials shall not be subject to restrictions on geographical location, equity ratios and investment amounts.
A foreign invested commercial enterprise that engages in wholesaling may not deal in pharmaceuticals, pesticides or mulching film prior to December 11, 2004 and may not deal in chemical fertilizer, processed oil or crude oil prior to February 11, 2006.
A foreign invested commercial enterprise that engages in retailing may not deal in pharmaceuticals, pesticides, mulching film or processed oil prior to December 11, 2004 and may not deal in chemical fertilizer prior to February 11, 2006.
A foreign invested commercial enterprise that engages in wholesaling may not deal in salt or tobacco, and a foreign invested commercial enterprise that engages in retailing may not deal in tobacco.
Article 18. Where the same Foreign Investor opens in the aggregate more than 30 outlets in China, and if the products dealt in include books, newspapers, periodicals, automobiles (this restriction will be cancelled on December 11, 2006), pharmaceuticals, pesticides, mulching film, chemical fertilizer, processed oil, grain, vegetable oils, edible sugar, or cotton, etc., and if the products have multiple brands and come from multiple suppliers, then the Foreign Investor's capital contribution ratio shall not exceed 49%.
Article 19. A foreign invested enterprise that authorizes others to open an outlet by means of a franchise shall adhere to the provisions of these measures and, where the State has separate regulations on franchising activities, shall also adhere to such regulations.
Article 20. A foreign invested commercial enterprise that engages in auctioneering shall comply with the Auction Law, the Law on Cultural Relics and related laws, and shall be subject to the examination and approval of the Ministry of Commerce. Specific implementing measures shall be formulated separately.
Article 21. The establishment of wholly foreign owned commercial enterprises is permitted as of December 11, 2004.
Article 22. Prior to December 11, 2004, the establishment of foreign invested commercial enterprises and their outlets that engage in retailing shall be restricted to provincial capitals, capitals of autonomous regions, municipalities directly under the central government, municipalities with independent development plans and special economic zones. These geographical restrictions shall be cancelled as of December 11, 2004.
The geographical restrictions on foreign invested commercial enterprises that engage in wholesaling shall be cancelled from the date these measures are implemented.
Article 23. A foreign invested enterprise that invests in the commercial sector in China shall comply with the Interim Provisions on Investment in China by Foreign Invested Enterprises and shall be dealt with by reference to these measures.
Article 24. A foreign invested enterprise other than a foreign invested commercial enterprise that engages in the business activities listed in Article 3 of these measures shall comply with the provisions of these measures and make a corresponding amendment to its business scope in accordance with the law.
Article 25. The investment in and establishment of a commercial enterprise in other provinces, autonomous regions or municipalities directly under the central government by investors from the Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan Region shall be carried out by reference to these measures, except as provided below:
Commercial service providers from Hong Kong and Macau may establish wholly foreign owned commercial enterprises in mainland China as of January 1, 2004.
The geographical scope within which commercial service providers from Hong Kong and Macau may establish retail enterprises in mainland China shall be extended to municipalities at the local level and to municipalities at the county level in Guangdong Province.
As from January 1, 2004, commercial service providers from Hong Kong and Macau may, in accordance with the relevant provisions of these measures, apply to establish a commercial enterprise in mainland China that engages in the retailing of automobiles, provided the investor has an average annual turnover of US$ 100 million or more over the three years prior to the application and assets of US$ 10 million or more in the year prior to the application. The registered capital of a commercial enterprise for the retailing of automobiles established in mainland China shall be at least RMB 10 million. The registered capital of a commercial enterprise for the retailing of automobiles established in the Central and Western Region shall be at least RMB six million.
Chinese citizens who are permanent residents of Hong Kong or Macau shall be permitted to establish sole proprietorships to engage in commercial retailing activities (except for franchising) in accordance with the relevant laws, administrative regulations and rules of China. The operating area of the sole proprietorship shall not exceed 300 square meters.
The commercial service providers from Hong Kong and Macau stipulated in this Article shall comply, respectively, with the definitions of "service providers" and the requirements of related provisions in the Mainland and Hong Kong Closer Economic Partnership Arrangement and the Mainland and Macau Closer Economic Partnership Arrangement.
Article 26. Foreign invested commercial enterprises are encouraged to join relevant industry associations and to strengthen enterprise discipline.
Article 27. The Ministry of Commerce shall be responsible for interpreting these measures.
Article 28. These measures shall be implemented from June 1, 2004.
Article 29. The Trial Measures on Foreign Invested Commercial Enterprises jointly promulgated by the former State Economic and Trade Commission and Ministry of Foreign Trade and Economic Cooperation shall be abolished from the date of implementation of these measures.
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RULES 
