Member Article

The Ministry of Commerce, the National Development and Reform Commission and the State Administration for Industry and Commerce jointly promulgated the Implementing Measures for the Administration of Branded Automobile Sales on 21 February 2005. The Measures, which entered into effect on 1 April 2005, are aimed at bringing more order in the Chinese automobile market. Operators The Measures distinguish between three types of operators in the branded automobile sales market: • automobile supplier: an enterprise which supplies automobile resources to branded automobile dealers, including automobile manufacturers and lead automobile dealers • branded automobile dealer: an enterprise which is authorised by an automobile supplier to engage in sales and servicing for automobiles by means of the branded automobile sales method • lead automobile dealer: an enterprise which is authorised by a domestic or foreign automobile manufacturer to set up a branded automobile sales and servicing network inside China to engage in automobile distribution For the purpose of the Measures, the term "branded automobile sales" means the dealing in automobiles by an automobile supplier or a branded automobile dealer authorised by an automobile supplier while using a unified store name, logo, trademark, etc. A domestic or foreign automobile manufacturer which sells its own automobiles inside China is required to set up a proper branded automobile sales and servicing system in order to increase the standard of automobile marketing and services. Authority The commerce authority of the State Council (currently the Ministry of Commerce) is responsible for the nationwide administration of branded automobile sales. The Administration of Industry and Commerce of the State Council is responsible for the supervision and management of branded automobile sales within the scope of its duties. Network plan The Measures require automobile suppliers to formulate a plan for branded automobile sales and a service network plan (the "network plan"). The network plan would include a forecast of operations, plan of distribution outlets, schedule for establishing the network and other matters. The network plan for a single automobile brand is normally formulated and implemented by a single domestic enterprise. Whereas a domestic automobile manufacturer can formulate and implement the network plan by itself or authorise a domestic lead automobile dealer to do so on its behalf, a foreign automobile manufacturer, which intends to sell automobiles in China, must authorise a domestic enterprise or an enterprise established by it in China to act as its lead automobile dealer and to formulate and implement the network plan. Establishment conditions The Measures specify the following establishment conditions of a lead automobile dealer: • it has enterprise legal person status; • it has been authorised in writing by an automobile manufacturer and holds the exclusive right to distribute a particular brand of automobiles; • it has specialised skills in automobile sales, including market research, marketing strategy, advertising and promotion, network building and guidance, product services and technical training and consulting, and supply of parts and logistics management. The Measures specify the following establishment conditions of a branded automobile dealer: • it has enterprise legal person status; • it has been authorised by an automobile supplier to sell brand automobiles; • the name of outlets, logos, and trademarks used are the same as those authorised by the automobile suppliers; • it has business premises, facilities and professional technical staff commensurate with its scale and scope of operations; • its new outlets conform with the relevant regulations regarding local urban development and urban commercial development. A branded automobile dealer or lead automobile dealer with foreign investment must not only satisfy the foregoing conditions but must also comply with the relevant regulations governing foreign investment. The Measures limit the equity ratio held by a single foreign investor prior to 11 December 2006 to a maximum of 49% if the investor has set up more than 30 brand sales stores in total. Establishment procedure The Measures set forth the procedure for establishing a lead automobile dealer and a branded automobile dealer. If the establishment involves foreign investment, the approval of the commerce authority of the State Council is required.