CHINA FRANCHISE NEWS
Vol. 2 , No.6 - March 15, 2001
Special Note:
A proposed revision of the "Regulation on Commercial Franchise Business" is before the State Economic and Trade Commission (SETC).
Lehman, Lee & Xu, as legal advisor to the China National Chain-store & Franchise Association (CCFA), has been invited to comment. If you have any comments regarding the current Commercial Franchise Regulation, please contact us at franchise@lalawfirm.com.cn
To see the electronic version of the Commercial Franchise Regulation, visit our web site www.Chinalaw.cc
TOPICS THIS ISSUE:
- Follow up: Carrefour Faces Crackdown in China for Flouting Rules
- Amendments to Law on Chinese-Foreign Equity Joint Venture Submitted to NPC
- Chinese Home Electric Appliance Retailers' Pursuit for Expansion
- Lucky-Fuji JV Negotiation Still Ongoing
- German SMEs Urge to Enter China
- Shanghai Gives Commerce Priority
- Multinationals Join China's Fight Against Counterfeiting
Follow up: Carrefour Faces Crackdown in China for Flouting Rules
We reported in our last issue that Financial Times on Feb. 8, 2001 wrote that Carrefour, the French company that has become the most successful foreign retailer in China, violated China central government regulations on foreign-invested retailing enterprises and faces protracted negotiations with authorities to "restructure" its businesses on the mainland.
Recently officials of the State Economic and Trade Commission (SETC) confirmed the said report. An SETC official said SETC had submitted to State Council a specific opinion on restructuring Carrefour's business.
It was not clear what this restriction would involve but insiders said punishment was probable. In Beijing's last crackdown on the retail sector, in 1997 and 1998, 277 foreign-invested commercial enterprises were checked and more than 35 outlets were closed and several foreign groups had to sell off their stakes to Chinese partners.
Carrefour's China headquarters has apologized and hopes to negotiate with the Chinese government to solve the problem, said the SETC official.
Since 1992, the retail industry in Beijing, Shanghai, Tianjin, and three other cities was opened up to foreign investment. Thereafter, the policy was modified several times but one point remains unchanged: the setup of foreign-invested commercial enterprises must be examined and approved by the State Council. By the end of 2000, the State Council approved project proposals of 30 foreign-invested chain stores and warehouse markets. But Carrefour is not on the list.
The SETC official said some foreign companies fail to secure government approval to open any stores, relying instead on the goodwill of local authorities, which is unfair for the other foreign groups who enter into China through legal channels. Wal-Mart was praised by the official as a good example of those who obey the rules of China.
Obviously Carrefour's ambitious expansion plans to open 10 more stores in China this year could be derailed by the restructuring, while its competitors, Wal-Mart, Markro, and Metro will be rewarded for their strict attention to the rules. It is reported that Wal-Mart has been permitted to run another 10 outlets in China bringing its total to 18, and Metro has been approved to run 8 outlets in Shanghai.
The SETC official also confirmed that China's program to open up its commercial sector will not change. China will, after its entry into WTO, cancel its restrictions on the volume of foreign commercial enterprises, regions, stock structure, and operating methods, and gradually open almost all commodities to foreign companies.
(Source: Sina News 03/05/01)
Amendments to Law on Chinese-Foreign Equity Joint Venture Submitted to NPC
Draft amendments to the Law on Chinese-Foreign Equity Joint Ventures, which aim to lift certain restrictions on manufacturing, operation, and purchasing of such enterprises, were submitted March 9 to the National People's Congress (NPC).
The amendments abolish requirements that joint ventures give priority to Chinese-made raw materials and report their production plans to government departments.
Gu Angran, director of the Legislative Affairs Commission of the NPC Standing Committee, said the revisions are "a move aimed at making the country's laws consistent with principles of a market economy and compatible with its impending accession to the World Trade Organization."
The other two laws relating to foreign investment in China -- Law on Foreign-Invested Enterprises and Law on Chinese-Foreign Contractual Enterprises -- were similarly amended by the NPC Standing Committee in October 2000.
(Source: China Daily 03/09/01)
Chinese Home Electric Appliance Retailers' Pursuit for Expansion
To cope with intense competition from both home and abroad, Guomei, the biggest home electric appliance retailer in Beijing, is expanding.
In Shanghai, the company is set to launch its 10th branch store in March, while in Zhengzhou and Xi'an, capitals of Henan Province in Central China and Shaanxi Province in the northwest, six to eight outlets will be opened in May. These, however, are only some of the retailer's ambitious plans. He Ju, vice-president of Guomei, revealed that a total of 45 stores would be established this year.
The firm, established in 1987, had a turnover of 3 billion yuan (US$370 million) and 35 chain stores by the end of last year. Chen Xiaomeng, a senior executive of the company, said that Guomei must strengthen itself by opening as many chain stores as possible to pursue a larger market share and prepare itself for the competition. The company also wanted to own a listed firm to raise capital for the long-term development of the company, Chen said.
Another retail giant, Suning, has also started an ambitious program - opening 1,500 home appliance chain stores in three years with an investment of 420 million yuan (US$50 million) and having a market share of 5 to 7 percent of the 300 billion yuan (US$36 billion) market.
The Nanjing-based company, with sales of 4 billion yuan (US$480 million) last year, said it would achieve its goal by selling franchise rights. Last month, it built a shop close to a Guomei store in Beijing and started a face-to-face battle. According to Sun Weimin, manager of Suning's Beijing branch, sales volume on the opening day reached 2 million yuan (US$240,000).
Besides bringing lower prices and higher efficiency with the competition of multinational retailing giants, China's accession to WTO is surely an important factor in the Chinese home electric appliance retailers' development.
(Source: Business Weekly 03/06/01)
Lucky-Fuji JV Negotiation Still Ongoing
China Lucky Film Corporation is in talks with Japan's Fuji Photo Film Co., Ltd. about a possible joint venture (JV), but the two parties have not yet reached an agreement, Lucky Film spokesman Zhang Gu said.
Lucky Film, the only remaining independent filmmaker in China, is also negotiating with other potential foreign and domestic investors, Zhang said. For example, Lucky Film has talked with Kodak about possible cooperation.
Lucky's intended cooperation with overseas investors aroused great attention in China because of the fear that the only company that turns out purely Chinese-made film would disappear. To dispel the worry, Zhang said, Lucky Film adheres to the principles that it must maintain its brand, keep a shareholding majority and retain power over management and decisions.
Analysts said for both Lucky and Fuji, there is a pressing need to beef up competition against Eastman Kodak Co. in China.
China is a large potential market for film. In China, consumption of film is only 0.1 roll per person, compared with 3.2 rolls per person in the U.S. and in Japan. Kodak owns the largest share of the Chinese film market, while Fuji and Lucky share most of the rest. Fuji lacks a production base in the country, and Lucky lacks the technology and capital to take on Kodak.
If a JV were set up, Fuji would contribute capital, technology, and management, while Lucky would help with manufacturing and distribution.
(Source: China Daily 03/06/01)
German SMEs Urged to Enter China
The German Chamber of Commerce in China will take a group on a tour of four commercial centers in Germany, including Berlin and Frankfurt, from March 12 to 16, to persuade more enterprises, especially small and medium-sized enterprises (SMEs), to invest in China.
This is the first organized effort by German business leaders in China to return home to spread the word of opportunities in the Chinese market. "The Chinese market has become comparatively well-developed and less risky, and it is high time for SMEs from Germany to set foot in the Chinese market," said Ernest H. Behrens, president of the German Chamber of Commerce in China, at a news briefing held here Tuesday.
Behrens, also president & CEO of Siemens Ltd. China, said that compared with 10 or 15 years ago, the framework of law regarding the Chinese market has taken shape. "The market has become more predictable and has less risks, and it has become all the more advantageous for SMEs," Behrens noted.
Over 80 percent of enterprises in Germany are SMEs, and they traditionally have hesitated to invest in China due to their limited financial resources and knowledge about the Chinese market. In China, however, SMEs account for over 90 percent of all enterprises, and the Chinese government has committed itself to creating a positive business environment for SMEs.
Statistics show that Germany's investment in China totaled 7 billion German marks in the past decade, far less than its investment in Britain of 8.1 billion German marks a year.
(Source: Xinhua News 03/06/01)
Shanghai Gives Commerce Priority
The city is striving to set up several large-scale retail chain stores with 2,000 outlets during the 10th Five-Year Plan period (2001-2005), according to Vice-Mayor Feng Guoqin.
The city has decided to spend the next five years focusing on the improvement of cooperation between local enterprises and multinational retailers. For the first time, the city government has listed commerce as one of its five-year-plan pillar industries. "That means the city government will pay greater attention to the growth of commerce." Feng said.
Feng is optimistic about the ability of chain stores to increase retail profits in the city. He predicts that by 2005 the city's retail sales will climb 250 billion yuan (US$30 billion) with an annual growth of 8 per cent. There is reason for Feng's optimism. According to economic forecasts, total retail sales volume in the city is expected to hit 185.4 billion yuan (US$22.4 billion) this year, or 8 percent more than last year.
The construction of a new deep water port and an international shipping port in Shanghai are expected to contribute greatly to the improvement of local commerce, as will the nation's imminent entry into the WTO, according to Feng.
(Source: China Daily 03/06/01)
Multinationals Join China's Fight Against Counterfeiting
The commitment and determination of Chinese government to combat counterfeiting have gained support from more and more multinationals.
"We applaud the effort Chinese government have taken on this issue. Nobody can resolve it in one day. But upon reviewing the accomplishments achieved last year, it is very possible to make a difference through a government-industry partnership," said Joseph Johnson, Chairman of the Quality Brands Protection Committee (QBPC) and president of Bestfoods China, a subsidiary of Unilever.
Since its setup under China Association of Foreign Invested Enterprises one year ago, the QBPC has been dedicated to legal reform and products protection in China. It has shared information and expertise with central and local enforcement agencies; initiated legal reform and anti-counterfeiting actions; conducted best practice seminars across the country; and supported government departments in training enforcement officials.
Many member companies are actively involved in the current nationwide campaign and have achieved some success. P&G launched over 670 raids in the year 2000, seizing 790,000 cases of fake P&G-branded products worth nearly RMB 230 million (US$28 million).
The QBPC now has 62 members including Coca-Cola, Compaq, Gillette, Henkel, Johnson & Johnson and Nike, with total investment of US$13 billion in China, according to the latest statistics.
(Source: Xinhua News 03/05/01)
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