Administration of Branded Automobile Sales Implementing Procedures

(Promulgated by the Ministry of Commerce, the National Development and Reform Commission and the State Administration for Industry and Commerce on February 21 2005 and effective as of April 1 2005.)

Order of MOFCOM, NDRC and SAIC [2005] No.10

PART ONE: GENERAL PROVISIONS

Article 1: These Procedures are formulated in accordance with relevant state laws and administrative regulations in order to regulate branded automobile sales, to promote the healthy development of the automobile market, and to safeguard the lawful rights and interests of consumers.

Article 2: These Procedures shall apply to branded automobile sales within the People's Republic of China.

Article 3: For the purposes of these Procedures, the term "branded automobile sales" refers to an act whereby automobile suppliers or their authorized branded automobile dealers engage in automobile business activities under a unified shop name, logo or trademark, etc.

The term "automobile supplier" means an enterprise that supplies automobile resources to branded automobile dealers, including an automobile manufacturer and automobile sole distributor.

The term "branded automobile dealer" means an enterprise authorized by an automobile supplier to engage in automobile sales and service activities by means of branded sales of automobiles.

The term "automobile sole distributor" means an enterprise authorized by a domestic or foreign automobile manufacturer to establish a branded automobile sales and service network and engage in automobile distribution activities.

Article 4: Domestic and foreign automobile manufacturers that sell, within China, automobiles they produce themselves shall establish a proper branded automobile sales and service system to improve the standard of marketing and services.

Article 5: Automobile suppliers shall formulate a branded automobile sales and service network plan (Network Plan). The Network Plan shall include: business projections, proposal for distribution of network points, progress in establishing the network, as well as standards for establishing stores, and for software, hardware and after-sales services.

Article 6: The Network Plan for a single brand of automobiles shall in general be formulated and implemented by a single domestic enterprise. Domestic automobile manufacturers may directly formulate and implement their Network Plans, or may authorize a domestic automobile sole distributor to formulate and implement the same. Foreign automobile manufacturers selling automobiles in China shall authorize domestic enterprises, or enterprises set up in China in accordance with relevant state provisions, to act as their sole automobile distributors and to formulate and implement their Network Plans.

Article 7: The State Council department in charge of commerce shall be responsible for the nationwide administration of branded automobile sales. The State Council department for industry and commerce administration shall be responsible within the scope of its duty for the regulation of branded automobile sales.

The departments in charge of commerce of provinces, autonomous regions and cities with independent development plans (Provincial-level Departments in Charge of Commerce), and local industry and commerce administrations, shall be responsible within the scope of their respective duties for the relevant regulation of branded automobile sales within the area of their jurisdiction.

PART TWO: ESTABLISHMENT OF SOLE AUTOMOBILE DISTRIBUTORS AND BRANDED AUTOMOBILE DEALERS

Article 8: Sole automobile distributors shall fulfil the following criteria:

(1) they shall have enterprise legal person status;

(2) they shall have written authorization from the automobile manufacturers and the sole right to the distribution of specified brands of automobiles; and

(3) they shall have professional skills in automobile sales. These shall mainly include market research, marketing strategy, advertising and promotion, network establishment and guidance thereof, product services, technical training and consultancy, supply of parts, and logistics administration.

Establishment of sole automobile distributors with foreign investment shall, as well as fulfilling the above criteria, comply with the relevant provisions governing foreign investment.

Article 9: Branded automobile dealers shall fulfil the following criteria:

(1) they shall have enterprise legal person status;

(2) they shall have authorization from the automobile suppliers to sell branded automobiles;

(3) their company names, logos and trademark shall be as authorized by the automobile suppliers;

(4) they shall have business premises, facilities and skilled technicians commensurate with the scope and size of their business; and

(5) newly opened stores shall conform with relevant local urban development and local urban commercial development provisions.

Establishment of branded automobile dealers with foreign investment shall, as well as fulfilling the above criteria, comply with the relevant provisions governing foreign investment.

Article 10: Applications to establish sole automobile distributors and branded automobile dealers shall be handled in accordance with the following procedures:

(1) applicants for sole automobile distributors shall submit the relevant materials that comply with Article 8 to the State Council department for industry and commerce administration for the record;

(2) automobile suppliers shall submit the relevant materials that comply with Article 9 of the applicants for branded automobile dealers to the State Council department for industry and commerce administration for the record; and

(3) applicants for establishment of sole automobile distributors or branded automobile dealers with foreign investment shall respectively submit the relevant materials as specified in Articles 8 and 9 and in relevant provisions governing foreign investment to the Provincial-level Department in Charge of Commerce of the place where the sole automobile distributor or branded automobile dealer is proposed to be established. The Provincial-level Department in Charge of Commerce shall, after conducting an initial review of the materials submitted, submit them to the State Council department in charge of commerce within one month of receiving all the application materials. If the Chinese parties include an enterprise group under state independent development plans, the application materials may be directly submitted to the State Council department in charge of commerce. The State Council department in charge of commerce shall, within three months of receiving all the application materials, render, together with the State Council department for industry and commerce administration, a decision on whether or not to grant approval. If approval is granted, the applicant shall be issued, or issued as a replacement, a Foreign-invested Enterprise Approval Certificate. If approval is not granted, the reasons therefor shall be explained.

Mergers or acquisitions of sole automobile distributors or branded automobile dealers by foreign investors, or inclusion of branded automobile sales in the business scope by existing foreign-invested enterprises, shall be handled in accordance with the procedures set forth in the preceding paragraph.

Article 11: The State Council department in charge of commerce and State Council department for industry and commerce administration may appoint the automotive industry association to organize a specialist committee to assess the qualifications of applicants applying to set up sole automobile distributors or branded automobile dealers. The assessment opinions shall be used for reference in examination and approval or record filing.

Article 12: Once the State Council department for industry and commerce administration has accepted to handle an application, it shall examine the relevant supporting materials; and, if the materials are compliant, it shall file the application for the record.

Article 13: Applicants for sole automobile distributors or branded automobile dealers shall carry out registration procedures with the local administration for industry and commerce on the strength of the document approving record filing or the Foreign-invested Enterprise Approval Certificate.

The administration for industry and commerce shall designate the scope of business of such sole automobile distributors or branded automobile dealers as "branded automobile sales".

Article 14: If a sole automobile distributor or branded automobile dealer has its brand name changed, it shall amend its registration in accordance with the procedures stipulated in Articles 10 and 13.

Article 15: Branded automobile dealers shall obtain authorization from the automobile supplier for launching chain operations, and shall follow the procedures specified in Articles 10 and 13.

Sole automobile distributors and branded automobile dealers establishing non-legal person branches or sub-branches to conduct sales of branded automobiles shall carry out registration with the local administration for industry and commerce on the strength of the written document given by the automobile supplier authorizing and agreeing to such establishment.

The establishment of non-legal person branches and sub-branches by foreign-invested sole automobile distributors or branded automobile dealers shall follow the procedures specified in Article 10.

Article 16: Prior to December 11 2006 the ratio of capital contribution made by a single foreign investor that engages in branded automobile sales in China and has opened more than 30 stores in aggregate shall not exceed 49%.

PART THREE: REGULATION OF AUTOMOBILE SUPPLIERS

Article 17: Automobile suppliers shall provide to authorized branded automobile dealers the automobile resources and the automobile manufacturer's own service trademark to implement the Network Plan.

Article 18: Automobile suppliers shall strengthen administration of branded sales and service networks, regulate sales and after-sales services, and publicize in a timely manner a list of enterprises authorized and enterprises no longer authorized to sell or provide services for branded automobiles. They shall not provide automobile resources to enterprises unauthorized to sell branded automobiles or to those that do not fulfil the relevant business criteria.

Article 19: Automobile suppliers shall provide to the consumers a guarantee of the automobile's quality and a service undertaking. They shall publicize in a timely manner when production of a model of automobile has ceased and take active measures to ensure a supply of parts for a reasonable period.

Automobile suppliers shall not supply or sell automobiles that do not comply with state safety and technical standards for motor vehicles or that are not listed in the Road Motor Vehicle Manufacturers and Products Announcement.

Article 20: Automobile suppliers shall allocate rationally their branded automobile sales and service points. The distance between branded automobile sales points and supply points of the auxiliary parts or after-sales service points shall not be more than 150 km.

Article 21: Automobile suppliers shall sign a business authorization contract with branded automobile dealers. Business authorization contracts shall be fair and equal, and shall not contain discriminatory clauses against the branded automobile dealers.

Article 22: Unless specified otherwise in the authorization contract, an automobile supplier shall not sell automobiles directly to users within the area it has authorized for sales to the branded automobile dealer.

Article 23: Automobile suppliers shall, according to the service functions of the branded automobile dealers, provide appropriate business training in such areas as marketing, publicity, after-sales service and technical service, as well as necessary technical support.

Article 24: Automobile suppliers shall not interfere with the construction work, purchase of equipment or business activities of branded automobile dealers that do not come under the business authorization contract, and shall not impose a compulsory sales quota or carry out package sales of popular and unpopular brands.

PART FOUR: REGULATION OF BRANDED AUTOMOBILE DEALERS

Article 25: Branded automobile dealers shall conduct such activities as branded automobile sales, after-sales service and supply of parts within the scope authorized by the automobile supplier.

Article 26: Branded automobile dealers shall rigorously abide by the business authorization contract with the automobile supplier. They shall use the automobile manufacturer's own service trademark as provided by the automobile supplier. They shall protect the automobile supplier's enterprise and brand image, and shall improve sales of and services to the branded automobiles they are selling.

Article 27: Branded automobile dealers shall post in the prominent area of their business premises the shop name, logo, trademark, etc. authorized for use by the automobile suppliers and shall not conduct in any form businesses in branded automobiles that have not been authorized.

Article 28: Branded automobile dealers shall only sell authorized branded automobiles directly to the end users, except where the authorizing automobile supplier allows otherwise.

Article 29: Branded automobile dealers shall show clearly in their business premises automobile quality guarantees and explanations of after-sales service to consumers. They shall provide the appropriate after-sales service in accordance with the business authorization contract with the automobile supplier and shall be subject to monitoring by consumers.

Article 30: Branded automobile dealers shall make clear in their business premises the prices of the branded automobiles they sell and all the fee rates. They shall abide by pricing laws and regulations and shall mark prices clearly.

Article 31: Branded automobile dealers shall not sell automobiles that are not in compliance with state safety and technical standards for motor vehicles or that are not listed in the Road Motor Vehicle Manufacturers and Products Announcement.

Article 32: Branded automobile dealers shall establish information management systems for sales business and customer files, etc. that shall accurately and in a timely manner reflect sales trends, customer demand and other relevant information in their area.

PART FIVE: MONITORING AND ADMINISTRATION

Article 33: Domestic automobile manufacturers transferring the rights and interests of the sales section to other legal person organizations shall, in addition to reporting to the Ministry of Commerce for approval in accordance with provisions, report to the original project examination and approval work unit for verification.

Article 34: A record filing system for sole automobile distributors and branded automobile dealers shall be established. Sole automobile distributors that fulfil the establishment criteria and have obtained a business licence shall report to the State Council department in charge of commerce for the record within two months of obtaining the business licence. Branded automobile dealers that fulfil the establishment criteria and have obtained a business licence shall report to their local Provincial-level Department in Charge of Commerce within two months of obtaining the business licence. Provincial-level departments in charge of commerce shall regularly report the relevant filed information from branded automobile dealers to the State Council department in charge of commerce.

Article 35: Automobile suppliers shall report to the State Council department in charge of commerce and State Council department for industry and commerce administration relevant materials regarding shop names, logos, trademark, etc. authorized for use to the branded automobile dealers. Written Chinese names used by imported branded automobiles shall be identical with those filed with the state quality and technical supervision department and other departments.

Article 36: Prior to October 1 2005, automobile suppliers shall carry out certification of the automobile sellers established before the implementation of these Procedures and shall report to the State Council department in charge of commerce and State Council department for industry and commerce administration the list of certified sole automobile distributors and branded automobile dealers as well as details of the brand authorization and enterprise registration for the record. Certified sole automobile distributors and branded automobile dealers shall carry out procedures for change of registration with the local administration for industry and commerce. The administration for industry and commerce shall designate their scope of business as "branded automobile sales".

Applications for branded automobile sales from automobile sellers that have not been certified shall be handled in accordance with the procedures specified in Articles 10 and 13 hereof.

Article 37: In the case of a violation of Article 18 or 28 hereof, the relevant administration for industry and commerce shall order a rectification and temporarily stop verification of new branded sales network points of the automobile suppliers.

Violations of other provisions hereof shall be investigated and handled by administrations for industry and commerce in accordance with relevant laws and regulations.

Article 38: The State Council department for industry and commerce administration shall publicize in a timely manner the list of sole automobile distributors and branded automobile dealers that have completed the formalities in accordance with Articles 10, 13 and 36 hereof.

Article 39: Departments in charge of commerce and administrations for industry and commerce shall, within their respective duties, adopt effective measures to strengthen regulation of automobile trading and of the automobile trading market, investigate and handle in accordance with the law illegal business activities, maintain order in the market, and safeguard the lawful rights and interests of the consumers, automobile suppliers and branded automobile dealers.

Article 40: The State Council department for industry and commerce shall, in conjunction with the department in charge of commerce, establish credit files on automobile suppliers and branded automobile dealers and shall publicize the list of enterprises that are in violation of the regulations in a timely manner.

Article 41: The automotive industry association shall formulate standards for the industry, shall strengthen guidance and monitoring, and shall promote self-discipline within the industry.

Article 42: The State Council department in charge of commerce shall strengthen regulation of the relevant assessments by the specialist committee organized by the automotive industry association and shall rigorously investigate and handle any violations of the regulations by such committees in its assessments.

PART SIX: SUPPLEMENTARY PROVISIONS

Article 43: These Procedures shall apply to passenger vehicles as of the date of their implementation. They shall apply to all automobiles other than special purpose vehicles as of December 1 2006.

Article 44: For the purposes of the Procedures, the terms "automobile", "passenger vehicle" and "special purpose vehicle" mean the vehicles as defined in the PRC state standard, Technical Terms for and Definitions of Types of Automobiles and Trailers (GB/T 3730.1-2001).

Article 45: The organization of the specialist committee organized by the automotive industry association and the qualification assessment implementing rules for sole automobile distributors and branded automobile dealers shall be formulated by the automotive industry association and implemented after being approved by the State Council department in charge of commerce.

Article 46: These Procedures shall be effective as of April 1 2005.