Foreign Stakes in Joint Ventures over 65% Must be Sold

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Last updated at: (Beijing Time) Tuesday, August 20, 2002

Foreign Stakes in Joint Ventures over 65% Must be Sold

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Officials with the State Economic and Trade Commission (SETC) reiterated that the government is continuing to make corrections on illegal majority foreign-owned chain stores nationwide to standardize this business model in China.

The move is aimed at reshuffling chain stores where the foreign-owned stake surpasses 65 per cent.

By law, foreign companies cannot own more than 65 per cent of a joint venture, however violations of this regulation are rampant as some regional governments have not complied with the law, said Huang Hai, director of the Department of Trade and Market at the SETC.

"Stakes owned by many foreign players in joint ventures are far above 65 per cent," he said. "For those companies where it surpasses 65 per cent, the stakes should be transferred."

Only companies approved by the State Council, can have at most 65 per cent of the joint ventures' total shares.

So far, fewer than 20 retail commercial enterprises have received approval.

Under China's commitment to the World Trade Organization, restrictions on the retail and service sector will be gradually lifted in the coming five years.

Analysts believe the current action will help domestic players get better prepared for the cut-throat international competition in the coming years.

"The rectification and clearance will be strengthened to pave the way for the healthy development of chain stores," Huang said.

Officials said yesterday they plan on releasing a set of new regulations to boost domestic chain stores.

More and more foreign chain stores and supermarkets are eyeing the Chinese market including stores such as Wal-Mart, Carrefour and Metro.

A SETC report showed that the sales volume of the top 20 chain stores in China reached 63.33 billion yuan (US$7.63 billion) in the first half of this year, a year-on-year growth of 44.9 per cent.

The number of individual stores of the top 20 enterprises total 5,997, up 59.24 per cent from a year earlier.

The Lianhua Supermarket Shareholding Company ranked first in sales volume, reaching 8.1 billion yuan (US$978 million) in the first half of the year.

But problems still face these companies including shortage of funds, inefficient management and cut-throat competition, Huang said.

From Jan-June this year, about 10 chain stores closed, including Huarong Supermarket, the largest supermarket in Fujian Province.

"Mergers and acquisitions among domestic companies could be an appropriate way to chop out giants in the field to compete with foreign rivals," Huang suggested.

He also added that SETC is currently negotiating with related government sectors to raise the registered capital for retail shops, however no timetable for this is available yet.

The current price to register a retail shop in China is only 100,000 yuan (US$12,800), a comparatively small amount in the retail industry.

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