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Beijing considers placing limits on foreign retailers

Chinese authorities are considering a law that would limit the expansion of foreign retailers, following complaints by Chinese firms that they were getting special treatment.

The new rules would affect retailers that have been operating without obtaining required licenses from the Ministry of Commerce.

IKEA, Wal-Mart, Carrefour and other foreign retailers have opened in China's major cities. The outsiders are challenging Chinese competitors with a combination of low prices, imported goods and Western-style service that is reshaping Chinese buying habits.

The crackdown would affect foreign-backed companies that have opened outlets with the permission from local governments but not central Chinese authorities. That could cover most foreign retailers in China.

A draft of the law on foreign-financed companies was circulated to retailers last month, said an official at the Ministry of Commerce's foreign investment department.

"Those policies exist, but we're making the law to strengthen their implementation," said the official, who refused to give his name.

He did not provide details.

State-run media reported that the law would order retailers to abide by current regulations requiring them to seek licenses from the ministry.

China has pledged to open its retail industry as a condition of WTO membership. But local businesses want the government to curb the rapid expansion of foreign stores.

Zhang Hongwei, chief of the Orient Group, a conglomerate which owns a Chinese chain of home-improvement stories, has accused regulators of giving foreign retailers special treatment while local outlets struggle.

In an interview with the newspaper 21st Century, he said appeals to Communist Party leaders had drawn results.

"We decided to do something," said Zhang, who also is vice chairman of China Industrial and Commercial Federation and member of a government advisory group.

"We organized some experts and did a survey and sent a report to the central leadership. It got their attention. This has made a difference," he said.

Under the new rules, retailers would be put into categories, with those already in compliance given a top "A" classification and presumably not affected.

Violators would be designated as "B" and "C" and could not expand or open new stores for an unspecified period of time, the newspaper China Business Daily reported.

The decision to enforce previously ignored rules is typical of the sudden shifts in policy that foreign investors face in China.

According to the Business Daily, only about 70 of the 300 foreign retail outlets in China are licensed by the Ministry of Commerce. Dozens of those were approved in the past year.

The remainder were approved by local governments, which do not have authorization to approve foreign retail businesses but have been keen to encourage economic growth and raise tax revenues.

Chinese retailers have also been merging in an effort to become more competitive.

In April, four Chinese retailers united to form the Shanghai Bailian Group. With 4,500 outlets across the country, the new company says it hopes to become the world's biggest retailer by 2010.
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