LexisNexis(TM) Academic - Document
LexisNexis(TM) Academic - DocumentCopyright 2005 The Financial Times Limited
Financial Times (London, England)
March 30, 2005 Wednesday
Asia Edition 1
SECTION: INVESTING IN CHINA; Pg. 9
LENGTH: 499 words
HEADLINE: A slow opening for distributors: Authorities have been reluctant to grant approval to foreign distribution companies DOUGLAS MARKEL LEGAL VIEW
BYLINE: By DOUGLAS MARKEL
BODY:
While China has made great strides in implementing its World Trade Organisation commitments, it has lagged in one important area that is starting to raise foreign eyebrows.
On joining the WTO, China promised that it would permit foreigners to engage in wholesale and retail distribution without having to make substantial capital investments, technology transfers or commitments to manufacture anything.
Among the market openings, foreign investors were to be permitted to set up their own distribution companies or expand their existing manufacturing or service ventures to engage in wholesale and retail sales of products they did not manufacture in China.
Although the enabling legislation to make this all happen came into law last spring, very few investors have been able to benefit from the new liberalisation because government approvals have not been forthcoming. Now the buds are appearing again and the authorities are still not issuing promised approvals. A Ministry of Commerce official recently confirmed that 70 applications had been received from foreign-invested companies to expand their business scope to include pure distribution activities, but not one had been approved.
While it is always hard to divine what motives may lurk behind the inertia, many informed observers guess it is nothing more than an inability of various ministries to agree on the details. The tax authorities appear to be particularly concerned. Foreign investors are granted generous tax holidays for setting up manufacturing enterprises, but sales companies do not.
The Ministry of Commerce sought to clarify where things stand in a recent meeting with representatives of the US-China Business Council, American Chamber of Commerce and US Embassy in Beijing.
As a result of a compromise with the State Administration of Taxation, manufacturing companies whose pure distribution revenue exceeds 30 per cent of total revenue will be considered distribution companies and lose their tax holidays. Manufacturing companies that expand their business scope to include distribution rights will only be permitted to distribute imported or domestically sourced products that are in the "same category" as those products they themselves manufacture. The Ministry of Commerce has also stressed that pure distribution companies that are completely separate from manufacturing companies will be approved more quickly. Moreover, separate distribution companies will not be subject to restrictions on categories of goods. The ministry claims that 178 applications have been received for new wholly foreign-owned distribution companies and 89 have been approved, apparently almost all Hong Kong companies under the Closer Economic Partnership Arrangement.
The ministry has promised written clarifications of these positions and instructions to foreign companies on how to expedite the process for obtaining distribution rights, but they have yet to appear.
The writer is a partner in Beijing with Freshfields Bruckhaus Deringer
LOAD-DATE: March 30, 2005
Financial Times (London, England)
March 30, 2005 Wednesday
Asia Edition 1
SECTION: INVESTING IN CHINA; Pg. 9
LENGTH: 499 words
HEADLINE: A slow opening for distributors: Authorities have been reluctant to grant approval to foreign distribution companies DOUGLAS MARKEL LEGAL VIEW
BYLINE: By DOUGLAS MARKEL
BODY:
While China has made great strides in implementing its World Trade Organisation commitments, it has lagged in one important area that is starting to raise foreign eyebrows.
On joining the WTO, China promised that it would permit foreigners to engage in wholesale and retail distribution without having to make substantial capital investments, technology transfers or commitments to manufacture anything.
Among the market openings, foreign investors were to be permitted to set up their own distribution companies or expand their existing manufacturing or service ventures to engage in wholesale and retail sales of products they did not manufacture in China.
Although the enabling legislation to make this all happen came into law last spring, very few investors have been able to benefit from the new liberalisation because government approvals have not been forthcoming. Now the buds are appearing again and the authorities are still not issuing promised approvals. A Ministry of Commerce official recently confirmed that 70 applications had been received from foreign-invested companies to expand their business scope to include pure distribution activities, but not one had been approved.
While it is always hard to divine what motives may lurk behind the inertia, many informed observers guess it is nothing more than an inability of various ministries to agree on the details. The tax authorities appear to be particularly concerned. Foreign investors are granted generous tax holidays for setting up manufacturing enterprises, but sales companies do not.
The Ministry of Commerce sought to clarify where things stand in a recent meeting with representatives of the US-China Business Council, American Chamber of Commerce and US Embassy in Beijing.
As a result of a compromise with the State Administration of Taxation, manufacturing companies whose pure distribution revenue exceeds 30 per cent of total revenue will be considered distribution companies and lose their tax holidays. Manufacturing companies that expand their business scope to include distribution rights will only be permitted to distribute imported or domestically sourced products that are in the "same category" as those products they themselves manufacture. The Ministry of Commerce has also stressed that pure distribution companies that are completely separate from manufacturing companies will be approved more quickly. Moreover, separate distribution companies will not be subject to restrictions on categories of goods. The ministry claims that 178 applications have been received for new wholly foreign-owned distribution companies and 89 have been approved, apparently almost all Hong Kong companies under the Closer Economic Partnership Arrangement.
The ministry has promised written clarifications of these positions and instructions to foreign companies on how to expedite the process for obtaining distribution rights, but they have yet to appear.
The writer is a partner in Beijing with Freshfields Bruckhaus Deringer
LOAD-DATE: March 30, 2005
posted by Eastlaw at 4:39 AM
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