Member Article

Ministry of Commerce ("MOFCOM") simplifies the approval process for foreign investments in sales projects using the Internet or vending machines

Since 2004, following MOFCOM's release of the "Measures for the Administration of Foreign Investment in the Commercial Sector" the distribution industry has been opened to foreign investment. In the subsequent few years, MOFCOM issued several circulars to delegate its power to its provincial level departments ("Provincial Authority") to facilitate foreign investors' access to the PRC distribution industry.

Under the "Circular regarding Several Issues concerning Examination and Approval on Foreign Investment on Sales through the Internet or Automatic Vending Machines" ("Circular") released by MOFCOM on 19 August 2010, MOFCOM delegated to the Provincial Authority approval powers in respect of the following:

• Sales through the Internet;
• Sales through automatic vending machines.

Sales through the Internet

The Circular provides that sales through the Internet shall be deemed an extension of an enterprise's sales activities. Accordingly, duly established foreign-invested commercial enterprises ("FICEs") or foreign-invested enterprises engaged in manufacturing activities ("Manufacturing FIEs") may engage in sales activities through the Internet without having to obtain further approval from MOFCOM or the Provincial Authority. However, a FICE or Manufacturing FIE will need to file for record with the Ministry of Industry and Information Technology ("MIIT") on its sale of products through its own network platform, and if it provides such network platform services to other traders, it will have to apply for a Value-added Telecom Service Licence from MIIT.

The Circular further requires a FICE or Manufacturing FIE engaging in sales through the Internet to display its business licence, as well as any requisite special permits (where applicable), conspicuously on the main page of its website, and to have established reasonable systems for the return and the replacement of products, the keeping of sales records and the protection of consumers' privacy and trade secrets.

Sales through automatic vending machines

The Circular provides that approval from the Provincial Authority is required for a FICE to engage in sales through automatic vending machines.

Furthermore, the FICE shall expressly indicate at a conspicuous place on each automatic vending machine the name, address and telephone number of the operator and as to how a complaint may be lodged. The FICE shall also establish clear systems for, among other things, the operation of automatic vending machines, product quality control and a mechanism for the resolution of disputes.

Possible impacts

The delegation of approval powers to the Provincial Authority under the Circular is in line with the policy under the "Several Opinions on Further Improving the Utilization of Foreign Investments" issued by the PRC State Council on 6 April 2010. Foreign investors intending to enter the manufacturing and/or distribution industries, as well as foreign investors currently operating in the manufacturing/distribution industries may take advantage of the convenience under the Circular to expand, develop or consolidate their sales strategies and network and become more cost efficient, and hence more competitive in terms of market penetration, customer management and product pricing.

The upcoming 2010 Asian Games hosted by Guangzhou, China

From 12 to 17 November 2010 the 2010 Asian Games are going to take place in the host city Guangzhou, China and three neighbouring cities Dongguan, Foshan and Shanwei in the Guangdong Province. Guangzhou is the second city in China to host the Games after Beijing did it in 1990. This year's is the 16th Asian Games, with the first hosted by New Delhi, India in 1951. Like the Olympics, the Asian Games are held every four years.

This time, a total of 476 events in 42 sports will be held, making this year's Games the largest in the history of the Games. The 2010 Asian Games' official emblem is a stylized goat, the representative symbol of the host city Guangzhou which is also referred to as the "City of Goats" or "City of the Five Rams". The vision "Thrilling Games, Harmonious Asia" of this year's Asian Games represents a dream and a promise that the Games will uphold the spirit of the Olympics and the Asian Games - which is to promote unity, friendship and further exchanges between different countries and regions.

With a long history of over 2,200 years, Guangzhou is the capital of the Guangdong Province and has become the province's political, economic and cultural centre. Through the 2010 Asian Games, Guangzhou will be in the spotlight to show the world its continuous efforts being put in to develop it into an international metropolis functioning primarily as the biggest financial, high-tech and light industrial, and communication and transport centre in South China.

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