Several restrictive regulations governing the entrance offoreign retailers in China are eased or eliminated under TheAdministration of Foreign Investment in Commercial SectorsMeasures, or the so-called "new measures," which were agreed uponin 2001 between China's ministry of commerce and the World TradeOrganization. "For the first time, foreign investors, includingsmall ones, will be able to establish trading entities in China . .. and also able to establish retail/wholesale operations withoutlarge-scale investment," says Mark Schaub of the Shanghai office ofBeijing-based King & Wood, a leading law firm in China.

Under the previous restrictions, foreign wholesale/retail firmscould only operate in designated major cities in China and onlyunder joint-venture with a China-based partner. A US partner in aretail JV was required to have annual sales volume of at least $2billion and assets of at least $200 million. Under the December 11new measures, there is no geographic restriction regarding whereforeign retail firms can locate, and no annual sales or assetminimums are required for entry. These restrictions on "foreigninvested enterprises (FIEs)" that enter through a JV-partnership,were dropped this June. On December 11, the easing of thoserestrictions will also be extended to foreign retailers thatestablish "wholly foreign owned enterprises (WFOEs)," permittingthem to go it alone. The new measures stipulate that both FIEs andWFOEs have a "good reputation" and have never breached laws of thePeople's Republic.

Schaub acknowledges that much depends on how the new measureswill be implemented. There is an application process that callsfor, among other things, a feasibility study, audit report ofinvestors, and a planning compliance report. In addition, morespecific regulations, such as quotas and licenses, exist forretailing certain "sensitive" items, which include pharmaceuticals,automobiles, and even fertilizer. There are also restrictions onforeign retailers that want to open multiple units. For example,those opening more than 30 outlets in certain (as yet not fullyspecified) product areas will be required to limit their share ofcapital in their China venture to 49%.