Governmental and Legal Issues in China Retailing
<ul><li>“ A company should keep 10 centimeters distance from the edge of laws. If it is too far, the company will lost opp...
Objectives <ul><li>Gain insight into the role of central and local government in economic development and retail industry ...
Outline <ul><li>The Role of Government </li></ul><ul><li>Retail Laws and Regulations </li></ul><ul><li>Opening a Store in ...
The Role of Government
Overview <ul><li>Government plays an important role in retail industry </li></ul><ul><ul><li>China has the elements of a p...
Chinese Government Structure <ul><li>CENTRAL COMMITTEE OF COMMUNIST PARTY OF CHINA (CCCPC)  </li></ul><ul><ul><li>Politica...
Chinese Government Structure (Cont.) <ul><li>Chinese Government Chart  (http://www.chinabusinessreview.com/public/0803/prc...
 
Corporate Structure of Chinese Retailers (Cont.) <ul><li>Corporate Governance of Chinese Retailers  </li></ul><ul><ul><li>...
Corporate Structure of Chinese Retailers (Cont.) <ul><li>Organizational Chart of Chinese Retailers </li></ul><ul><ul><li>W...
Wangfujing President President Union President Office Business  Development Retailing General Department Store Super  Mark...
Wuhan Zhongbai General Meeting of Shareholders Board of Directors Audit Department President Supervising Committee Preside...
Gome Board  Director Executive Vice-president President Decision  Committee Headquarter Location Gome Yongle Pengrun Store...
Role of Government <ul><ul><li>How does the government influence retailers? </li></ul></ul><ul><ul><ul><li>Make guidelines...
General Guidelines from the Central Government <ul><li>Five-year plans </li></ul><ul><ul><li>Ninth five-year plan (1996-20...
<ul><li>Modernize China’s distribution and retail system and emphasize the appliance of IT technology.  </li></ul><ul><li>...
<ul><li>Encourage the retail development in Western area </li></ul><ul><li>Encourage the establishment of distribution cen...
Control over Sate-Owned Retailers <ul><li>Government keeps its control over major retailers and contracts or sells out sma...
Special Treatments from Government <ul><li>Potential special treatments from local government. </li></ul><ul><ul><li>Reduc...
Local Government’s (Yingkou) Role in the Development of Retail Market: <ul><li>Yinkou Government </li></ul><ul><ul><li>Off...
Retail Laws and Regulations
General Laws <ul><li>Company Law of the People’s Republic of China </li></ul><ul><li>Law of the People’s Republic of China...
Specific Regulations on Retail Industry <ul><li>Measures for the Administration of Foreign Investment in Commercial Fields...
Standards <ul><li>Standards of Retail Store Environment </li></ul><ul><ul><li>Evaluating Method of the Damage to Retail Co...
Measures for the Administration of Foreign Investment in Commercial Fields <ul><li>By Ministry of Commerce </li></ul><ul><...
Measures for the Administration on Sales Promotion Acts of Retailers <ul><li>By Ministry of Commerce, National Development...
Measures for the Administration on Sales Promotion Acts of Retailers <ul><li>Retailers should clearly state the quantity o...
Administrative Measures for Fair Transactions Between Retailers and Suppliers <ul><li>By Ministry of Commerce, National De...
Administrative Measures for Fair Transactions Between Retailers and Suppliers <ul><li>Retailers should not conduct the fol...
Administration of Direct Selling Regulations <ul><li>By State Council and effective at 11/2005 </li></ul><ul><li>Purpose <...
Administration of Direct Selling Regulations <ul><li>Direct selling enterprise should have a deposit of no less than 20 mi...
Prohibition of Pyramid Selling Regulations <ul><li>By State Council  </li></ul><ul><li>Purpose </li></ul><ul><ul><li>Preve...
Prohibition of Pyramid Selling Regulations (Cont.) <ul><li>Formats of pyramid selling </li></ul><ul><ul><li>Calculate the ...
Evaluating Method of the Damage to Retail Competitors <ul><li>By Ministry of Commerce </li></ul><ul><li>The concept of dam...
Evaluating Method of the Damage to Retail Competitors (Cont.) <ul><li>Conditions </li></ul><ul><ul><li>Building a new reta...
Evaluating Method of the Damage to Retail Competitors (Cont.) <ul><ul><li>Building a new store by disobeying urban commerc...
Standards on Retail Store Environment <ul><li>National standards effective from 10/2009 </li></ul><ul><li>It stipulates th...
Measures for the Administration of Commercial Franchises <ul><li>By State Council and effective at 05/2007 </li></ul><ul><...
Measures for the Administration of Commercial Franchises (Cont.) <ul><li>Regulation on franchise operation activities </li...
Notice on Restricting the Producing, Selling, and Using of Plastic Shopping Bags <ul><li>By State Council and effective on...
Current Status <ul><li>Maintain the order of the retail market </li></ul><ul><li>Further open retail industry  </li></ul><...
The Future of Government Retail Policies <ul><li>Government->market </li></ul><ul><li>Laws and regulations will become cle...
The Future of Government Retail Policies <ul><li>Consumer protection </li></ul><ul><li>Retailing and distribution in rural...
Opening a Store in China
Open a Retail Store in China <ul><li>What are the basic requirements?  </li></ul><ul><ul><li>Regulations on Registered Cap...
Open a Retail Store in China  (Cont.) <ul><li>What are the major procedures for Registering a Foreign Retail Store in Chin...
Enterprise Name Registration Bureau of Industry and Commerce Approval Certificate (Contract, Feasibility Study Report, Art...
Open a Retail Store in China  (Cont.) <ul><ul><li>Bureau of Industry and Commerce and Bureau of Foreign Trade and Economic...
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Module 7 Ethical issues

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  • When the director or CEO of the two most successful companies in China talked about the success of their companies, both of them mentioned the importance of law and government policies. Because China is in huge changes, legal system is under building up and government policies keep changing along with the development of economy. It is very important for companies to closely follow the government’s law and policies to grab opportunities and avoid legal risks. For example, hypermarkets were greatly encouraged by government 10 years ago in China, however the expansion of hypermarkets have been strictly restricted by government in the first and some second tier cities.
  • Under the current reforms, China government is gradually relaxing its control on economy and let market play more role in the economic development. However, because the long history of planned economy, government still has great influence on retail industry.
  • There are four major power centers in China’s government system: Communist party of China (CPC), People’s Congress (PC), State Council; and Chinese People’s Political Consultative Conference (CPPCC). These four organizations co-existing and parallel with each other in different levels: National level, provincial level, city level, and district and county levels. Use the PDF file “prc_government_chart” to explain each system. China is a one-party-political system and is ruled by CPC. CPC is a huge system with 73 million members. The CPC is defined by deep vertical and cross-functional integration that extends into leading social, economic, academic and state administrative organizations. Any entity with 3 or more non probationary party member can establish a primary party organization. At the lowest level of CPC organizational hierarchy are grassroots and primary organizations. These group can be find in all kind social organizations such as government, state-owned companies, and Universities. Some foreign retailers such as Walmart have also set up CPC branches. Party congress are organized at the local and national levels. By ways of staggered elections through this chain, the top political leadership obtain its authority. National congress of CPC meets once every five years with over 2000 delegates elected from all over the country. These delegates nominally elect the central committee, a 300 plus person body which, in turn, has responsibility to select 20-25 members of the political bureau. Out of this group, 5-9 individuals are chosen to be the members of standing committee of the political bureau, the center of the party power. The highest leader of CPC is general secretary. The current secretary, Jintao Hu is also the president of China. National People’s Congress National People’s Congress formally exists as the highest organ of the state power, because it constitutes the legislative branch of Chinese government and approve government’s work report, budget allocation and economic plan for the future. NPC is comprised of 3,000 delegates, who meet annually. NPC elects the members of Standing committees, President, vice-president, president of Supreme People’s Court, and president of Supreme People’s Procuratorate. China’ president regarded as head of state. Once elected, the president in turn appoints a premier with approval of the NPC. The Premier serves as the head of stat council. When the NPC is not in full session, Standing Committee of NPC has the right to modify and decide on legislature, supervise all state organs, and may appoint or remove hades of ministries and commissions. People’ congress constitute the highest level of state power at the corresponding level, meeting annually at the sub-nationally level. The leadership of local government, courts, and other offices are elected by their corresponding congress. Supreme people’s court is the highest trial organ in the country, and with supervisory power of local people’s courts and special peoples’ courts. Procuratorates run parallel to the court system. State council Premier is responsible for overseeing the state bureaucracy, including ministries, departments, and leading commissions. Chinese People’s Political Consultative Conference Its members are from other eight political parties, non government organizations (e.g., All China Women’s Union and All China Federation of labor), and a growing numbers of renowned individuals, such as Olympians and musicians. It is a advisory body, supervising and providing advice to government. As described, state and party organizations appear independent of each other, as of operating under distinct chains of command borne of election proceedings. The CPC has continued to have considerable influence over government activities because the significant number of party member in the elections. Without the CPC’s support, it is impossible for a candidate to win an election. CPC rules other organization through its control over key appointments within the central and local bureaucracies and military commands, thus exerting considerable power throughout the country.
  • State owned retailers have branches of communist party.
  • This chart is got from the company’s website. This is a leading state-owned department chain. It has communist party branch in each level of the company. The secretary of CPC is ranked the first in the company followed by the president. The Chart shows that the president of unit needs to report to CPC president. Traditionally, union in China is more likely to represent the company rather than the employees. Its function includes distribute some benefits (such as free movie tickets) to employees, organize activities for employees (such as parties), and help build up company culture.
  • It is a Chinese retailer. It has a supervising committee, which is common in Chinese company. The supervising committee monitors the operation of the company and reports to the general meeting of shareholders. It is learned from European companies.
  • This is a private retailer.
  • The Five-Year Plans of China are a series of economic development initiatives. Each plan normally contains detailed economic development guidelines for all its regions.
  • After the central government publish a Five Year Plan (it is a general guideline), Each province and each section will develop a Five Year Plan for its own region or section according to central government’s general five year plan. E.g., Beijing government will develop a Five Year Plan for Beijing area. Ministry of Commerce will develop a Five Year Plan for Business Development. This plan included the guidelines specific for the development of retail industry. Above is the 11st Five Year Plan of National business Development (2006). The 12nd five year plan of national business development should come out very soon.
  • Bailian, the largest Chinese retailer, was created by combing Friendship Group (Owner of Lianhua Supermarket), Hualian Group (Owner of Hualian Supermarket), Shanghai Yibai group (the parent of Shanghai Number one Department Store), and Shanghai Material Group. Capital Chain Store Group was created by 13 leading retailers in Beijing including Xidan, Wumei, Xiaobaiyang, and Jingkelong etc.
  • The special treatments are not only for domestic retailers but also for international retailers. In fact, in order to attract foreign investment and advanced management, some local governments give beneficial offers to foreign retailers. In the first and second tier cities, because the market is fully. Government may not offer special treatment to newcomers. But special treatments are likely to continue as the foreign retailers expand into the lower-tier cities.
  • The problem is that the fine is small and the punishment is too light.
  • Primary business area means the geographic area covering 50-70% customers of a retail store
  • Primary business area means the geographic area covering 50-70% customers of a retail store Minor business area means the geographic area covering 15-25% customer of a retail store.
  • Regulations are general and many departments are in charge of the implementations.
  • Cultivate big retailers and distributors in order to compete with foreign companies. The opening of business unit larger than 10,000 square meters should go through public auditing. Building rural supermarkets and modern distribution systerm
  • Government will control the distribution and price of some specific products.
  • Transcript of "Module 7 Ethical issues"

    1. 1. Governmental and Legal Issues in China Retailing
    2. 2. <ul><li>“ A company should keep 10 centimeters distance from the edge of laws. If it is too far, the company will lost opportunities; if too close, the company will have legal risk ” </li></ul><ul><li>- Liu Chuanzhi, Director of Lenovo </li></ul><ul><li>“ A firm should have three eyes: one is on internal management…; one is on market changes…; and the third is on governments’ polices” </li></ul><ul><li>- Zhang Ruimin, CEO of Haier </li></ul>
    3. 3. Objectives <ul><li>Gain insight into the role of central and local government in economic development and retail industry regulation </li></ul><ul><li>Study major retail regulations and rules in China and their implications for MNREs’ operation in China </li></ul>
    4. 4. Outline <ul><li>The Role of Government </li></ul><ul><li>Retail Laws and Regulations </li></ul><ul><li>Opening a Store in China </li></ul>
    5. 5. The Role of Government
    6. 6. Overview <ul><li>Government plays an important role in retail industry </li></ul><ul><ul><li>China has the elements of a planned economy. </li></ul></ul><ul><ul><ul><li>China’s retailers are still affected by the legacy of the command economy. </li></ul></ul></ul><ul><ul><li>The government’s role evolves with the reforms over time. </li></ul></ul><ul><ul><ul><li>The general direction is that the government will be less likely to directly intervene the operations of retailers. </li></ul></ul></ul><ul><ul><li>The government’s role varies across the country. </li></ul></ul><ul><ul><ul><li>Retail market reforms occurred first in the major special economic zones and cities along the east coast and then slowly spread out to other inland areas. </li></ul></ul></ul>
    7. 7. Chinese Government Structure <ul><li>CENTRAL COMMITTEE OF COMMUNIST PARTY OF CHINA (CCCPC) </li></ul><ul><ul><li>Political Bureau </li></ul></ul><ul><ul><li>Secretariat </li></ul></ul><ul><ul><li>Central Military Commission </li></ul></ul><ul><ul><li>Central Discipline Inspection Commission </li></ul></ul><ul><li>NATIONAL PEOPLE'S CONGRESS(NPC) </li></ul><ul><ul><li>State Central Military Commission </li></ul></ul><ul><ul><li>Supreme People's Court </li></ul></ul><ul><ul><li>Supreme People's Procuratorate </li></ul></ul><ul><li>STATE COUNCIL </li></ul><ul><li>CHINESE PEOPLE'S POLITICAL CONSULTATIVE CONFERENCE(CPPCC) </li></ul>
    8. 8. Chinese Government Structure (Cont.) <ul><li>Chinese Government Chart (http://www.chinabusinessreview.com/public/0803/prc_government_chart.pdf) </li></ul><ul><li>( angloconference.com/chines_comm_party.php ) </li></ul><ul><li>Administrative Hierarchy of China </li></ul><ul><li>( http://www.unescap.org/huset/lgstudy/country/china/china.html ) </li></ul><ul><li>Additional Reading </li></ul><ul><ul><li>UN ESCAP Country paper: China </li></ul></ul><ul><li>( http://www.unescap.org/huset/lgstudy/country/china/china.html ) </li></ul>
    9. 10. Corporate Structure of Chinese Retailers (Cont.) <ul><li>Corporate Governance of Chinese Retailers </li></ul><ul><ul><li>General Meeting of Shareholders </li></ul></ul><ul><ul><li>Supervising Committee </li></ul></ul><ul><ul><li>Board of Directors </li></ul></ul><ul><ul><li>CEO/President/General Manager </li></ul></ul><ul><ul><li>Union </li></ul></ul><ul><ul><li>Branch of Communist Party </li></ul></ul>
    10. 11. Corporate Structure of Chinese Retailers (Cont.) <ul><li>Organizational Chart of Chinese Retailers </li></ul><ul><ul><li>Wangfujing Group (State-owned) </li></ul></ul><ul><ul><li>(http://www.wfj.com.cn/pages/main.html?sub=company_1) </li></ul></ul><ul><ul><li>Gome (Private) </li></ul></ul><ul><ul><li>( http://o.cpw.com.cn/Article/2006-11/20061124132802020150.Htm ) </li></ul></ul><ul><ul><li>Wuhan Zhongbai Group (State-owned) </li></ul></ul><ul><ul><li>(http://www.whzb.com/myAction.do?method=execute1&type=jtjg) </li></ul></ul>
    11. 12. Wangfujing President President Union President Office Business Development Retailing General Department Store Super Market Merchants Invitation Finance Auditing Engineering Property & Security Information Technology Human Resource Business School Legal Office Cooperate Newspaper Enterprise Planning Secretary Corporate Branch of Communist Party Cooperate Branch Of Communist Party Union Vice Presidents
    12. 13. Wuhan Zhongbai General Meeting of Shareholders Board of Directors Audit Department President Supervising Committee President Office Finance Stock Administration Human Resource Information Training Security Business Development Wuhan Zhongbai Department Store Co., Ltd Wuhan Zhongbai Warehouse store Co., Ltd Wuhan Zhongbai Supermarket Co., Ltd Wuhan Zhongbai Electronic Appliance Store Co., Ltd Wuhan Zhongbai Distribution Co., Ltd Wuhan Zhongbai Property Management Co., Ltd Wuhan Zhongbai E-commerce Co., Ltd Wuhan Zhonglian Pharmacy Co., Ltd.
    13. 14. Gome Board Director Executive Vice-president President Decision Committee Headquarter Location Gome Yongle Pengrun Store Management Logistic Inventory Buying Human Resource Information Administration Branding Customer Service Marketing Merchandising Administration
    14. 15. Role of Government <ul><ul><li>How does the government influence retailers? </li></ul></ul><ul><ul><ul><li>Make guidelines for the direction of the industry </li></ul></ul></ul><ul><ul><ul><li>Make policies to regulate the industry and retailers </li></ul></ul></ul><ul><ul><ul><li>Influence the industry through state-owned retailers </li></ul></ul></ul><ul><ul><ul><li>Special treatment to foreign retail investment </li></ul></ul></ul>
    15. 16. General Guidelines from the Central Government <ul><li>Five-year plans </li></ul><ul><ul><li>Ninth five-year plan (1996-2000) </li></ul></ul><ul><ul><ul><li>Focused on regulatory issues such as modernization of ownerships. </li></ul></ul></ul><ul><ul><li>Tenth five-year plan (2001-2005) </li></ul></ul><ul><ul><ul><li>Encouraged investment in western China. </li></ul></ul></ul><ul><ul><li>Eleventh five-year plan (2006-2010) </li></ul></ul><ul><ul><ul><li>Suggested the furthering of market reforms and development of a modern distribution system. </li></ul></ul></ul><ul><ul><li>Twelfth five-year plan (2011-2015) </li></ul></ul><ul><ul><ul><li>Emphasized the development of firm size and brand. </li></ul></ul></ul><ul><ul><ul><li>Encouraged e-commerce. </li></ul></ul></ul>
    16. 17. <ul><li>Modernize China’s distribution and retail system and emphasize the appliance of IT technology. </li></ul><ul><li>Encourage e-commerce </li></ul><ul><li>Modify old retail industry and develop new retail formats </li></ul><ul><ul><li>Enforce urban business network planning and rationalize the establishment of big retail stores and shopping malls. </li></ul></ul><ul><ul><li>Establish auditing procedures and restrict the expansion of hypermarkets in city centers </li></ul></ul><ul><ul><li>Update traditional grocery stores to supermarkets or convenience stores. </li></ul></ul><ul><ul><li>Encourage the development of category specialists. </li></ul></ul><ul><ul><li>Encourage the development of C&C stores </li></ul></ul><ul><li>Encourage the development of modern supermarkets and convenience stores in rural areas </li></ul><ul><li>Establish the direct connection and cooperation between retailers and farmers. </li></ul>The 11 th Five Year Plan of National Business Development (2006)
    17. 18. <ul><li>Encourage the retail development in Western area </li></ul><ul><li>Encourage the establishment of distribution centers and third party distribution. </li></ul><ul><li>Emphasize the service functions of retailers for communities. </li></ul><ul><li>Cultivate large domestic retailers </li></ul><ul><li>Support the development of small retailers. </li></ul><ul><li>Encourage the development of green food and green supply chain. </li></ul>The 11 th Five Year Plan of National Business Development (2006)
    18. 19. Control over Sate-Owned Retailers <ul><li>Government keeps its control over major retailers and contracts or sells out small retailers. </li></ul><ul><ul><li>“ Control the big ones and let go the small ones” </li></ul></ul><ul><ul><li>Government influences the whole industry through its control over the leading retailers. </li></ul></ul><ul><li>Government forms big retail groups in order to achieve economies of scale and compete with foreign retailers. </li></ul><ul><ul><li>Bailian, the largest Chinese retailer, was developed by combing four big state-owned retailers. </li></ul></ul><ul><ul><li>Capital Chain Store Group, the largest retail group in Beijing, was created by combing 13 leading retailers in Beijing. </li></ul></ul>
    19. 20. Special Treatments from Government <ul><li>Potential special treatments from local government. </li></ul><ul><ul><li>Reduced taxes </li></ul></ul><ul><ul><li>Prime retail location </li></ul></ul><ul><ul><li>Low rent </li></ul></ul><ul><ul><li>Low interest loan </li></ul></ul><ul><ul><li>Bypass state restrictions (Grey Area) </li></ul></ul><ul><ul><ul><li>By the end of 2000, 277 foreign retailers were approved by local government without the notice of the central government. </li></ul></ul></ul><ul><ul><ul><li>At the same time, only 28 foreign retailers were approved by central government. </li></ul></ul></ul>
    20. 21. Local Government’s (Yingkou) Role in the Development of Retail Market: <ul><li>Yinkou Government </li></ul><ul><ul><li>Offer better service and favorable policies </li></ul></ul><ul><ul><li>Guide the retailers to fit the urban planning of the city </li></ul></ul><ul><li>Interviews Video with Yinkou government officials </li></ul>
    21. 22. Retail Laws and Regulations
    22. 23. General Laws <ul><li>Company Law of the People’s Republic of China </li></ul><ul><li>Law of the People’s Republic of China On Sino-Foreign Equity Joint-Ventures </li></ul><ul><li>Law of the People’s Republic of China on Sino-Foreign Contractual Joint Venture </li></ul><ul><li>Law of the people’s Republic of China on Wholly Foreign-owned Enterprise </li></ul><ul><li>Law of the People's Republic of China for Countering Unfair Competition </li></ul><ul><li>Law of the People’s Republic of China on the Protection of Consumer Rights </li></ul><ul><li>Law of the People's Republic of China on Promotion of Small and Medium-sized Enterprises </li></ul><ul><li>Etc. </li></ul>
    23. 24. Specific Regulations on Retail Industry <ul><li>Measures for the Administration of Foreign Investment in Commercial Fields </li></ul><ul><li>Measures for the Administration on Sales Promotion Acts of Retailers </li></ul><ul><li>Administrative Measures for Fair Transactions Between Retailers and Suppliers </li></ul><ul><li>Administration of Direct Selling Regulations </li></ul><ul><li>Prohibition of Pyramid Selling Regulations </li></ul><ul><li>Measures for the Administration of Commercial Franchises </li></ul><ul><li>Notice on Restricting the Producing, Selling, and Using of Plastic Shopping Bags </li></ul>
    24. 25. Standards <ul><li>Standards of Retail Store Environment </li></ul><ul><ul><li>Evaluating Method of the Damage to Retail Competitors </li></ul></ul><ul><ul><li>Standards on Retail Formats </li></ul></ul>
    25. 26. Measures for the Administration of Foreign Investment in Commercial Fields <ul><li>By Ministry of Commerce </li></ul><ul><li>Purpose </li></ul><ul><ul><li>Further expand the open-up to the outside world and improve the construction of market distribution system. </li></ul></ul><ul><li>Approval of opening a store by a foreign retailer </li></ul><ul><ul><li>Provincial government or the government of state special economic zones </li></ul></ul><ul><ul><ul><ul><li>A foreign retailer has fewer than 3 stores in the province or zone, and each store is smaller than 5000 square meters. It has no more than 30 stores in China in total. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>A foreign retailer has fewer than 5 stores in the province or zone, and each store is smaller than 3000 square meters. It have less than 50 store in China in total. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Each store is smaller than 300 square meters. </li></ul></ul></ul></ul><ul><ul><li>Ministry of Commerce </li></ul></ul><ul><ul><ul><li>For other situations </li></ul></ul></ul>
    26. 27. Measures for the Administration on Sales Promotion Acts of Retailers <ul><li>By Ministry of Commerce, National Development and Reform Commission, State Taxation Administration, State Administration of Industry & Commerce, and Ministry of Public Security and effective on 10/15/2006 </li></ul><ul><li>Purpose </li></ul><ul><ul><li>Regulate retailers’ promotion, protect consumers’ benefits, maintain fair competition among retailers, and help the healthy development of retail industry. </li></ul></ul><ul><li>Retailers should state clearly the purposes, rules, formats, scope, time, and restrictive conditions for promotions. The statement of “retailer explanation” is invalid. </li></ul><ul><li>Retailers should not increase price before discounts or promotions. </li></ul>
    27. 28. Measures for the Administration on Sales Promotion Acts of Retailers <ul><li>Retailers should clearly state the quantity of products for timed panic buying. </li></ul><ul><li>Promoted products should have the same after-sale service and return policies as regular products. </li></ul><ul><li>Maximal fine is ¥30,000. </li></ul>
    28. 29. Administrative Measures for Fair Transactions Between Retailers and Suppliers <ul><li>By Ministry of Commerce, National Development and Reform Commission, State Taxation Administration, State Administration of Industry & Commerce, and Ministry of Public Security and effective on 110/15/2006, </li></ul><ul><li>Applicable to retailers with more than10 million RMB Sales. </li></ul><ul><li>Maximal fine is 30,000 RMB. </li></ul>
    29. 30. Administrative Measures for Fair Transactions Between Retailers and Suppliers <ul><li>Retailers should not conduct the following unfair transactions: </li></ul><ul><ul><li>Refuse to accept products with no excuse, ask suppliers to pay for the damage to goods, ask for return profit, and request supplier to purchase certain product or service. </li></ul></ul><ul><li>Retailer should not charge fees in the following conditions </li></ul><ul><ul><li>For signing or renewing a contract; charge fee on store bar code for products already having national approved bar codes; the fee for store bar code should not exceed its cost; store renovation or decoration; charge fees for festival, new store opening, store anniversary etc without any promotions; any other cost that are not directly related to the selling of products. </li></ul></ul><ul><li>Payment should be made in 60 days, and retailers should not delay its payment without reasonable excuses. </li></ul>
    30. 31. Administration of Direct Selling Regulations <ul><li>By State Council and effective at 11/2005 </li></ul><ul><li>Purpose </li></ul><ul><ul><li>Regulate direct selling behaviors, strengthen the supervision on direct selling activities, preventing fraud and protecting consumers’ legitimate and social and public interests. </li></ul></ul><ul><li>Direct selling means a type of business model, which direct selling enterprise recruits distributors, and distributors sells product directly to end consumers away from a fixed retail locations. </li></ul><ul><li>Pay-up registered capital is not less than 80 million yuan. </li></ul>
    31. 32. Administration of Direct Selling Regulations <ul><li>Direct selling enterprise should have a deposit of no less than 20 million yuan. </li></ul><ul><li>For foreign investors, it must have been involved in the direct selling business for at least three years outside China. </li></ul><ul><li>Direct selling enterprise must pay the distributor by month. Payment should be calculated only based on individual sales, and may not exceed 30% of the sales. </li></ul><ul><li>Direct selling enterprise should not hire government employees, teachers, doctor, soldiers, full time students, foreigner, and lawyers as distributors. </li></ul>
    32. 33. Prohibition of Pyramid Selling Regulations <ul><li>By State Council </li></ul><ul><li>Purpose </li></ul><ul><ul><li>Preventing fraud, protecting the legitimate rights and interests of citizens, legal persons and other organizations, maintaining the socialist market-economic order, and maintaining the social stability. </li></ul></ul><ul><li>Pyramid selling means an act, in which organizers or operator sponsor people, and calculate and pay bonus based on the number or sales of directly and indirectly sponsored persons, or obtain illegal interest by forcing the sponsored persons to pay amount of entry fee as the condition of meet the entry requirements. </li></ul>
    33. 34. Prohibition of Pyramid Selling Regulations (Cont.) <ul><li>Formats of pyramid selling </li></ul><ul><ul><li>Calculate the payment based on the number of the directly and indirectly sponsored persons. </li></ul></ul><ul><ul><li>Force the sponsored persons to pay an entry fee or pay an entry fee in a disguised way- such as purchasing a product to qualify sponsoring to obtain illegal interest. </li></ul></ul><ul><ul><li>Calculate and pay the payment to the up line sponsor based on the sales of the down line to obtain the illegal interest. </li></ul></ul>
    34. 35. Evaluating Method of the Damage to Retail Competitors <ul><li>By Ministry of Commerce </li></ul><ul><li>The concept of damage to retail competitors </li></ul><ul><ul><li>The negative influence of big retailers on small retailers, or the negative consequence caused by unfair competition between retailers with similar sizes. </li></ul></ul><ul><ul><li>It includes substantive damage and generic damage. </li></ul></ul><ul><li>Standards </li></ul><ul><ul><li>Customer loss </li></ul></ul><ul><ul><li>Sales decrease </li></ul></ul><ul><ul><li>Business environment deteriorates </li></ul></ul>
    35. 36. Evaluating Method of the Damage to Retail Competitors (Cont.) <ul><li>Conditions </li></ul><ul><ul><li>Building a new retail store with the same or similar format in a supermarket, hypermarket or warehouse’ primary business area </li></ul></ul><ul><ul><li>One corporation builds two retail stores, whose minor business areas cover another retailer with the same or similar format. </li></ul></ul><ul><ul><li>Building a shopping center in or near an established urban business center, regional business center or urban business street. </li></ul></ul><ul><ul><li>A new store blocks other retailers’ entrance and parking lots. </li></ul></ul>
    36. 37. Evaluating Method of the Damage to Retail Competitors (Cont.) <ul><ul><li>Building a new store by disobeying urban commercial network planning </li></ul></ul><ul><ul><li>Building a new store by disobeying general urban planning </li></ul></ul><ul><ul><li>Regional market monopoly </li></ul></ul><ul><ul><ul><li>A retail store or two retail stores with the same or similar format owned by the same corporation have 50% or more market share in a urban business center, regional business center, or urban business street. </li></ul></ul></ul><ul><ul><ul><li>A retail store have 50% or more market share in a middle size (7000 population) or larger community. </li></ul></ul></ul>
    37. 38. Standards on Retail Store Environment <ul><li>National standards effective from 10/2009 </li></ul><ul><li>It stipulates the requirement for the store environment, equipment, and facilities for supermarket, hypermarket, discount store, convenience store, and warehouse store. </li></ul><ul><ul><li>E.g. the aisles in a convenience store and discount store should be wider than .9 meter; the aisles in a hypermarket and warehouse store should be wider than 1.6 meters. </li></ul></ul>
    38. 39. Measures for the Administration of Commercial Franchises <ul><li>By State Council and effective at 05/2007 </li></ul><ul><li>Purpose </li></ul><ul><ul><li>Regulate commercial franchises, promote the healthy and orderly development of the commercial franchise industry and maintain the market order. </li></ul></ul><ul><li>The qualifications of franchisers and franchisees </li></ul><ul><ul><li>A franchise should process a mature business model and the ability to provide long-term guidance, technical support, business training and other services to the franchisee. </li></ul></ul><ul><ul><li>A franchiser shall have at least two direct sales stores and have undertaken the business for more than a year . </li></ul></ul>
    39. 40. Measures for the Administration of Commercial Franchises (Cont.) <ul><li>Regulation on franchise operation activities </li></ul><ul><li>Regulation on information disclosure </li></ul><ul><li>Regulation on the responsibilities and rights of both parties. </li></ul>
    40. 41. Notice on Restricting the Producing, Selling, and Using of Plastic Shopping Bags <ul><li>By State Council and effective on 6/2008 </li></ul><ul><li>Producing, selling and using super-thin (< .025 mm) plastic shopping bags are prohibited. </li></ul><ul><li>Retailers are forbidden to provide free plastic shopping bags to consumers. </li></ul><ul><li>Plastic bags should have clear signs on identification, e.g., ordinary plastic bag, degradable plastic bag, and plastic bag for food etc. </li></ul>
    41. 42. Current Status <ul><li>Maintain the order of the retail market </li></ul><ul><li>Further open retail industry </li></ul><ul><li>Help and regulate the development of retailers </li></ul><ul><li>Have the legacy of command economy </li></ul><ul><li>Lack of law or policies specific for retail industry </li></ul><ul><li>Difficult to implement </li></ul>
    42. 43. The Future of Government Retail Policies <ul><li>Government->market </li></ul><ul><li>Laws and regulations will become clearer and more specific. </li></ul><ul><li>Policies on cultivating the competitive advantages of Chinese retailers </li></ul><ul><ul><li>Suggestion on promoting the development of distribution industry (State Council, 2005) </li></ul></ul><ul><li>Prevent from the monopoly of big retailers and promote the development of small retailers </li></ul><ul><ul><li>Regulations on urban planning of commercial network (Ministry of Commerce) </li></ul></ul><ul><ul><li>Anti-monopoly law </li></ul></ul>
    43. 44. The Future of Government Retail Policies <ul><li>Consumer protection </li></ul><ul><li>Retailing and distribution in rural area </li></ul><ul><li>Fair competition between Chinese and foreign retailers </li></ul><ul><li>Retailing special products (e.g., alcohol, tobacco, oil, and drugs ) </li></ul><ul><li>Retail IT system </li></ul>
    44. 45. Opening a Store in China
    45. 46. Open a Retail Store in China <ul><li>What are the basic requirements? </li></ul><ul><ul><li>Regulations on Registered Capital of a Foreign Retailer </li></ul></ul><ul><ul><ul><li>No less than 300,000 RMB </li></ul></ul></ul><ul><ul><ul><li>( http://www.bjmsn.com/n-7668.html ) </li></ul></ul></ul><ul><ul><li>Regulations on Franchising (Sternquist,2007) </li></ul></ul><ul><ul><ul><li>Operate two physical stores in China for one year before operating a franchise system. </li></ul></ul></ul><ul><ul><ul><li>Master franchising needs special permission. </li></ul></ul></ul><ul><ul><ul><li>Have a proven business format. </li></ul></ul></ul>
    46. 47. Open a Retail Store in China (Cont.) <ul><li>What are the major procedures for Registering a Foreign Retail Store in China? </li></ul><ul><li>( www.gszhuce.org/waizizhuce/html/202.html ) </li></ul>
    47. 48. Enterprise Name Registration Bureau of Industry and Commerce Approval Certificate (Contract, Feasibility Study Report, Articles of Association, and Application) Certificate of Organizational Code Business License Charter Moment Statistics Registration Customs Registration Foreign Exchange Registration Tax Registration Open Bank Account Capital Certificate Registration Business License Change Bureau of Foreign Trade and Economic Cooperation Bureau of Quality and Technical Supervision Bureau of Industry and Commerce Bureau of Public Security Bureau of Statistics Customs Administration of Foreign Exchanges State and Local Taxation Bureau Banks Law Firms Bureau of Industry and Commerce
    48. 49. Open a Retail Store in China (Cont.) <ul><ul><li>Bureau of Industry and Commerce and Bureau of Foreign Trade and Economic Cooperation are the two most important government departments in the process. </li></ul></ul><ul><ul><ul><li>Foreign retailers can consult Bureau of Industry and Commerce and Bureau with any questions about general procedures regarding opening a new store </li></ul></ul></ul><ul><ul><ul><li>Foreign retailers can consult Bureau of Foreign Trade and Economic Cooperation with any questions about foreign investment. </li></ul></ul></ul><ul><ul><li>The process takes around 2-4 months in Beijing, Shanghai, and Guangzhou, and it might be longer in inland cities. </li></ul></ul>

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