Market Access Report: Distribution

By Stéphane Luo and Mo Fei, Jones Day, Shanghai

Since the beginning of China's open door policy more than twenty years ago, the authorities have encouraged foreign investors to engage in manufacturing. Recently, Chinese market access restrictions have become more flexible; China has even committed in its WTO accession to allow foreign majority shareholders in general commission agencies, wholesale and retail businesses no later than December 11 2003, and the creation of wholly foreign-owned enterprises in this field will be possible by December 11 2004. However, such phase-in measures do not remove the high market entry thresholds for foreign-invested merchandising companies as set out in the Procedures for Pilot Projects for Commercial Enterprises with Foreign Investment (promulgated June 25 1999). Although some creative solutions are available for foreign investors attracted by the potential of the Chinese market (such as setting up a trade company in the Shanghai Waigaoqiao free trade zone), none of the alternatives are satisfactory given the restrictions imposed by current regulations.

Nevertheless, the role played in the Chinese market by foreign investors is significant due to the huge number of manufacturing foreign-invested enterprises (FIEs). This role is growing, even though manufacturing FIEs are supposed to only sell those products that they have manufactured themselves. Given the under-developed nature of the Chinese market economy, the Chinese legal system in this field remains quite rudimentary. Manufacturing FIEs have often to invent their own rules and practices in their efforts to access the Chinese market.