3. Accession to the WTO

§ As a consequence of WTO accession, China has agreed to lift the specific joint venture restriction on large department stores and for virtually all chain stores, as well as lifting the 20,000m2 size limit for foreign owned stores.

§ Accession has initiated the liberalisation of site location. Two further cities (Wuhan and Zhengzhou) were opened immediately following accession, and within two years retail joint ventures will be allowed in all provincial capitals, plus Chongqing and Ningbo. In practice, however, the Chinese government’s “Go West” policy has meant that foreign retail joint ventures have already opened in some of these cities.

§ All geographic, quota, equity, and retail format restrictions will be lifted after three years, including restrictions on retail franchising (although it should be noted that the Chinese government has already begun experimenting with the latter). The exception will be chain stores with over 30 outlets selling or distributing restricted items such as chemical fertilisers and motor vehicles. In such cases, foreign minority ownership will remain in force for five years after accession, after which the equity restrictions will be eliminated.

§ In preparation for what promises to be significant competition from foreign retailers, Chinese retailers are consolidating operations for the post-WTO environment. The aim is to pool resources, ensure economies of scale within the industry, and create large domestic firms capable of beating (or at least matching) foreign retailers at their own game. One example is Shanghai-based Hualian, one of the largest retailers in China, which in March 2001 formed a venture with Beijing Chaoshifa Company and Xidan Department Store – a case of pan-regional cooperation in China’s previously regionally-focused domestic retail sector.

§ China’s accession to the World Trade Organisation is seen as a giant boost for the retail sector. This is particularly true for well-established retail giants like Carrefour, Wal-Mart, Makro, and Metro, which should now be able to expand more rapidly and with fewer restrictions. Optimistic views of a more favourable investment environment are encouraging retailers to increase their China operations. Wal-Mart alone is currently planning to build five new stores in Beijing, has moved its global sourcing to Shenzhen, and intends to increase annual purchases from China by 25%.

§ As a result of the pending liberalisation of franchising, China is expected to have more franchises in 10 to 15 years than any other country in the world. With the success of the likes of KFC, Kodak and Starbucks, this approach is currently attracting a considerable amount of attention from franchisers who see it as an effective and cheap method of spreading their brand, and franchisees seeking safe investments. Recent converts include both Hualian and Lianhua supermarkets, and the previously reluctant McDonalds.