Member Article

The Ministry of Commerce (“MOFCOM”) issued the Notice of the Ministry of Commerce on Entrusting Local Authorities with the Examination and Approval of Commercial Enterprises with Foreign Investment on 9 December 2005. The Notice, which became effective on 3 March 2006, is expected to reduce the time required for setting up a commercial enterprise with foreign investment (“commercial FIE”). Delegation of approval authority The establishment of a commercial FIE is governed by the Measures for the Administration of Foreign Investment in the Commercial Sector (“Commercial Measures”) which took effect on 1 June 2004. The Commercial Measures set forth a two-step process for the establishment of a commercial FIE: initial review by the provincial level commerce authorities and final examination and approval by MOFCOM. Pursuant to the Notice, MOFCOM has delegated the power to approve the establishment of commercial FIEs to the provincial level commerce authorities. The provincial level commerce authorities now have the authority to approve commercial FIEs and are only required to report the matter for the record to MOFCOM. The provincial level commerce authorities are not permitted to approve certain types of commercial FIE as MOFCOM reserved the approval right for a commercial FIE if: • its mode of operations involves sales through television, telephone, mail order, internet or automatic vending machines, etc.; or • it distributes important industrial raw materials such as steel, precious metals, ironstone, fuel oil, natural rubber or the products that are specified in Articles 17 and 18 of the Commercial Measures such as books, newspapers, periodicals, processed oil, pharmaceuticals, automobiles, pesticides, mulching film, salt, tobacco, grain, vegetable oils, edible sugar and cotton. The above provisions also apply if an existing FIE applies to expand its business scope with distribution rights. Retail outlets The Notice further authorises provincial level commerce authorities to approve the establishment by commercial FIEs engaged in retail activities of retail outlets within the province or state-level economic and technological development zone in which they are located in the following circumstances: • the area of a single outlet does not exceed 5,000 square meters and there are not more than three outlets in total, and the foreign investor has not opened more than 30 outlets in the same class in China through commercial FIEs; or • the area of a single outlet does not exceed 3,000 square meters and there are not more than five outlets in total, and the foreign investor has not opened more than 50 outlets in the same class in China through commercial FIEs; or • the area of a single outlet does not exceed 300 square meters. The provincial level commerce authorities may approve such outlets on their own and are only required to report the matter to MOFCOM. It is anticipated that the devolution of approval authority for these enterprises should significantly reduce approval time.