Measures for the administration of foreign investment in the commercial sector

Article 1 These Measures are formulated in accordance with such laws and regulations as <The Law of the People’s Republic of China on Chinese and Foreign Equity Joint Ventures>, <The Law of the People’s Republic of China on Chinese and Foreign Cooperative Joint Ventures>, <The Law of the People’s Republic of China on Wholly Foreign-Owned Enterprises>, and <The Company Law of the People’s Republic of China>.

Article 2 These Measures apply to Commercial foreign-invested enterprises (“Commercial FIES”) established by foreign companies, enterprises, or other economic entities or individuals (“Foreign Investors”) in the PRC.

Article 3 Commercial FIES refers to FIES engaging in:

1. Commission agency: Where an agent, broker, auctioneer, or other distributors engage in the sale of goods of others and provide the auxiliary services by agreement and in exchange for fees.
2. Wholesaling: Sale of goods to retailers, industrial, commercial, and institutional customers, or other distributors, and provision of the related services.
3. Retailing: Sale of goods to individual or group customers at a fixed geographic location, on television, by phone, by mail, on the World Wide Web, through automated vending machines, and provision of the related services.
4. Franchising activities: Granting the right to use one’s trademark, trade name or operating model to others by agreement and in exchange for remuneration or franchising fees.

Foreign companies, enterprises, and other foreign economic entities or individuals may only engage in the business activities in Clauses 3(1), 3(2), 3(3) and 3(4) above through the establishment of Foreign Invested Enterprises (“FIES”).

Article 4 Commercial FIES shall abide by the laws, rules, and regulations of the PRC. Their legitimate business activities and legal rights shall be protected by the laws, rules, and regulations of the PRC.

Article 5 The Ministry of Commerce (“MOFCOM”) and its regional departments are the competent approval and supervision authority.

Article 6 Foreign investors must have good standing and credit, and must not have violated Chinese laws, rules, or regulations. Foreign investors that possess comparatively strong economic power, advanced marketing skills and managing experiences, and wide international marketing network are encouraged to establish Commercial FIES in the PRC.

Article 7 Commercial FIES shall meet the following conditions:

1. Minimum registered capital under the <Company Law of the People’s Republic of China> and the related regulations;
2. Abiding by the relevant regulations on the registered capital, and on the total amount of investment for FIES; and
3. In general, the operating period shall not exceed 30 years, 40 years for central and western regions.

Article 8 Where Commercial FIES seek to open stores, the following conditions shall be met:

1. Where the application to establish a Commercial FIE and the application to open a store are submitted at the same time, such arrangement must adapt to the commercial development plans of the cities where they are located.
2. Where an approved Commercial FIE applies to open a store, in addition to meeting the condition set out in Clause 8(1), the following conditions shall also be met:
   1. The Commercial FIE shall participate in the annual inspection for Commercial FIES in a timely manner, and shall pass the inspection; and
   2. The Commercial FIE’s registered capital shall be fully paid up.

Article 9 Subject to approval, Commercial FIES may engage in the following business activities: A retailing Commercial FIE is 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 Commercial FIE may carry out wholesaling, commission agency (excluding auctions), import and export, and other auxiliary activities.

Commercial FIES may transfer franchising rights to third parties to open stores.

Subject to approval, Commercial FIES may engage in one or more of the sales activities mentioned above. The types of merchandise shall be specified under the business scope in the joint venture contract or the articles of association of the Commercial FIE, as the case may be.

Article 10 The following procedures shall be followed for the establishment of Commercial FIES and the opening of stores:

1. The project proposal, feasibility report and application for the establishment of the Commercial FIE shall be examined and approved or rejected after one review;
2. Except where Clause 10(3) or Clause 10(4) provides otherwise, investors proposing to establish a Commercial FIE, or established Commercial FIES proposing to open a new store shall submit the documents listed under Article 12 or Article 13 (as the case may be) to the provincial level commercial authority of MOFCOM overseeing the Commercial FIE’s place of registration or proposed place of registration. After a preliminary review by the provincial level commercial authority of MOFCOM, all of the application documents would be transferred to MOFCOM within one month of the submission of the application documents. MOFCOM shall make a final decision as to approve or to reject the application within three months of receiving all of the application documents. A “Commercial FIE Approval Certificate” will be issued in respect of an approved application, and MOFCOM will state the reasons for each rejected application.

   MOFCOM reserves the right to delegate its approval authority to its provincial level commercial authorities.

3. Where a retail Commercial FIE purports to open a store in the provincial jurisdiction where it is located, provided that the following conditions are satisfied, and that its business scope does not include sale of goods on television, by phone, by mail, on the World Wide Web, through automated vending machines, or any merchandise listed in Article 17 or Article 18 of these Measures; the provincial level commercial authority of MOFCOM could approve the application in lieu of MOFCOM. The provincial level commercial authority of MOFCOM should then file records of the application with MOFCOM.
   1. The business area of any single store of the Commercial FIE is 3,000 square meters or less, and the total number of stores does not exceed 3; furthermore, the total number of stores of the same kind opened by the same foreign investor in China through establishing Commercial FIES does not exceed 30;
   2. The business area of any single store of the Commercial FIE is 300 square meters or less, and the total number of stores does not exceed 30; furthermore, the total number of stores of the same kind opened by the same foreign investor in China through establishing Commercial FIES does not exceed 300.
4. Where the trademark or trade name of the Chinese foreign equity joint venture or Chinese foreign cooperative joint venture is owned by domestic enterprises or Chinese natural persons, and where Chinese investor(s) is/are the controlling shareholder(s) of the Commercial FIE, and the Commercial FIE’s business scope does not encompass any merchandise listed in Article 17 or Article 18 of these Measures, then an application to establish the Commercial FIE or to open an associated store could be submitted to the provincial level commercial authority of MOFCOM overseeing the place where the Commercial FIE is located. The opinion of the provincial level commercial authority of MOFCOM in the jurisdiction where the store is intended to be located must also be sought for an application to open a store in a province or province equivalent territory other than in the province or territory where the Commercial FIE is located.

Provincial level commercial authorities of MOFCOM must not exercise any of the approval authorities referred to in Clause 10(3) and Clause 10(4) above without first receiving MOFCOM’s express delegation of authority in this regard.

Article 11

The investor shall, within ONE month of receiving the approval certificate from the relevant commercial authority, bring the “Commercial FIE Approval Certificate” to proceed with registration at the local Administration of Industry and Commerce.

Article 12 The following documents should be submitted in order to establish a Commercial FIE:

1. Application letter;
2. Feasibility report compiled by all operators;
3. Joint venture contract and articles of association (articles of association only in the case of Wholly Owned Commercial Foreign Invested Enterprises (Commercial WFOES)) and schedules;
4. Bank’s certification on property and credit, certificate of registration (photocopy), legal representative certificate (photocopy); where the foreign investor is an individual, the individual’s identification documents;
5. The audited financial reports of all operators for the most recent financial year;
6. (If Chinese operator makes investment with State-owned property) the confirmation document of state-owned property managing departments on the assessing report concerning the Chinese operator’s investing state-owned property;
7. The Commercial FIE’s draft import and export merchandise list;
8. The list of the members of the board of directors of the Commercial FIE, and letters of appointment of the directors of all operators;
9. Business name approval document issued by the relevant local authority of the Administration of Industry and Commerce;
10. Land use right certificate (photocopy) and/ or lease agreement (photocopy) for the space where the store to be opened would be located, unless the store’s business area is less than 3,000 square meters;
11. Documents issued by the local government overseeing the planned location for the store, showing that the project meets the commercial development plans and requirements of the city where the store will be located.

Document not signed by the legal representative must be accompanied by a power of attorney signed by the legal representative.

Article 13

Where an established Commercial FIE applies to open a store, the following documents shall be submitted:

1. Application letter;
2. Revised joint venture contract or articles of association, if any;
3. Feasibility report concerning the opening of the store;
4. Board resolution to open the store;
5. The Commercial FIE’s audited financial report for the most recent financial year;
6. The Commercial FIE’s asset verification report (photocopy);
7. Certificate of registration (photocopy) and legal representative certificate (photocopy) of all operators;
8. Land use right certificate (photocopy) and/ or lease agreement (photocopy) for the space where the store to be opened would be located, unless the store’s business area is less than 3,000 square meters;
9. Documents issued by the local government overseeing the planned location for the store, showing that the project meets the commercial development plans and requirements of the city where the store will be located.

Document not signed by the legal representative must be accompanied by a power of attorney signed by the legal representative.

Article 14 Where the Commercial FIE has entered into an agreement concerning the use of trademark and trade name, technological transfer, management agreements, service agreements, such agreements shall be attached to the joint venture contract (or the articles of association of Commercial WFOE) as a schedule, and be submitted to the relevant commercial authority altogether.

Article 15 Commercial FIES shall acquire the land to be used for the business operations of their stores through public tender, auction or publicly listed sale, in accordance with the relevant laws and regulations on land management.

Article 16 Commercial FIES trading in merchandises that are subject to special regulations, or in import or export merchandises that are subject to state imposed quotas or permits must abide by the relevant state regulations in that regard.

Article 17 Where the business scope of the Commercial FIE encompasses the following merchandises, the following regulations must be followed in addition to these Measures:

Where the business scope of a Commercial FIE encompasses books, newspapers, and periodicals, the <Administrative Measures for Foreign Investment in Books, Newspapers, Periodicals Distribution Enterprises> must be followed.

Where a Commercial FIE operates in gas stations that engage in the retail distribution of finished oil products, the Commercial FIE must ensure that it has a stable source of supply of finished oil products, that it respects local regulations on the construction of gas stations, that the facilities and equipment involved respect national standards and regulations, and that the relevant fire and environmental protection requirements have also been met. The detailed implementation measures in this regard will be separately set out by MOFCOM.

Where a Commercial FIE’s business scope encompasses pharmaceutical products, the national laws and regulations on the sale of pharmaceutical products must be respected. The detailed implementation measures in this regard will be separately set out by MOFCOM.

Where a Commercial FIE’s business scope encompasses motor vehicles, the Commercial FIE shall respect the approved business scope. The detailed implementation measures in this regard will be separately set out by MOFCOM.

Except where this Article or Article 18 of these Measures provides otherwise, Commercial FIES engaging in the trade of agricultural byproducts, agricultural production materials or data will not be subject to any geographic restrictions, or any restrictions with respect to the proportion of shareholding or the amount of investment.

Wholesale Commercial FIES may not engage in the trade of pharmaceuticals, pesticides and mulching films before December 11, 2004, and may not engage in the trade of fertilizers, finished oil products or crude oil before February 11, 2006.

Retail Commercial FIES may not engage in the trade of pharmaceuticals, pesticides, mulching film, or finished oil products before December 11, 2004, and may not engage in the trade of fertilizers before December 11, 2006.

Wholesale Commercial FIES may not engage in the trade of salt or tobacco, and retail Commercial FIES may not engage in the trade of tobacco.

Article 18 A foreign investor that has opened a total of more than 30 stores in the PRC will not be allowed to hold more than 49% equity interests in a joint venture Commercial FIE if the goods it sells include books, newspapers, magazines, motor vehicles (this restriction will be lifted as of December 11, 2006), pharmaceuticals, pesticides, mulching films, fertilizers, finished oil products, grain, vegetable oil, sugar for human consumption, and cotton, etc which are of various brands and from different suppliers.

Article 19 Commercial FIES that authorize others to open franchise stores must abide by these Measures and other national regulations on franchising activities.

Article 20 Commercial FIES engaging in auction activities must abide by the <Auction Law>, the <Cultural Relic Law> and other relevant laws, and subject to the approval of MOFCOM. The detailed implementation measures in this regard will be set out by MOFCOM.

Article 21 The establishment of Commercial WFOES will be permitted as of December 11, 2004.

Article 22 Before December 11, 2004, retail Commercial FIES and its stores must be established in provincial capitals, capitals of autonomous regions, municipalities directly under the Central Government, municipalities separately listed on the State Plan or special economic zones. As of December 11, 2004, there will no longer be any geographic restrictions on the establishment of retail Commercial FIES and its stores.

Wholesale Commercial FIES will no longer be subject to any geographic restrictions as of the date these Measures come into force.

Article 23

FIES that purport to invest in the domestic commercial sector should abide by the <Provisional Regulations on Domestic Investment by Foreign Invested Enterprises> in addition to abiding by these Measures.

Article 24

FIES other than Commercial FIES that purport to engage in the business activities described in Article 3 shall abide by these Measures, and adjust their business scope accordingly.

Article 25 The establishment of Commercial FIES in the mainland of China by investors from Hong Kong, Macao and Taiwan shall be dealt with in accordance with these Measures, modified as follows:

1. As of January 1, 2004, commercial service providers from Hong Kong and Macao may establish Commercial WFOES in the mainland of China;
2. Hong Kong and Macao commercial service providers may establish retail Commercial FIES in regional and county level municipalities in the province of Guangdong, and in regional level municipalities in the rest of mainland China.
3. As of January 1, 2004, Hong Kong and Macao commercial service providers may apply to establish Commercial FIES in the mainland of China to engage in retail distribution of motor vehicles in accordance with these Measures and the related regulations subject to the following requirements: The average annual sales volume of the applicant Hong Kong or Macao commercial service provider must be at least USD100 million for the three years immediately preceding the application, with total assets of at least USD10 million in the year immediately preceding the application, and the registered capital of the proposed motor vehicle retail distribution FIE must be at least RMB10 million or RMB6 million in central and western regions of the mainland of China.
4. Hong Kong and Macao permanent residents who are Chinese citizens may set up personal businesses to engage in commercial retail activities (except those activities where special business permits are required) in accordance with the laws, regulations, and rules of mainland China, with a business area not exceeding 300 square meters.
5. For the purpose of these measures, Hong Kong and Macao service providers shall meet the definition of, and the requirements for, Hong Kong and Macao service providers as set out in the <Closer Economic Partnership Agreement between the Mainland and Hong Kong> or in the <Closer Economic Partnership Agreement between the Mainland and Macao>, as the case may be.

Article 26 Commercial FIES are encouraged to participate in the relevant trade associations to strengthen self-governance.

Article 27 MOFCOM is the competent authority for the interpretation of these Measures.

Article 28 These Measures enter into force on June 1, 2004.

Article 29 These Measures hereby replaces the <Pilot Procedures for Foreign Investment in Commercial Enterprises> promulgated by the former State Economic and Trade Commission and the Ministry of Foreign Trade and Economic Cooperation as of the date these Measures enter into force.