Chinese retailing companies have been described as sheep while foreign retailers are wolves coming into China after its WTO entry.

Crying wolf for years, many of the sheep have not been eaten and some are even living better.

"The sheepfold is so large that wolves and sheep have enough space to live together," said Wei Zhe, president of UK-based B&Q.

According to a list of the top 30 chain store operators in the first half of 2004 issued by the Ministry of Commerce, local retail companies are doing much better than the global giants.

The Shanghai Bailian Group, which merged into Shanghai Lianhua Group and Lianhua Group, the two biggest chain store operators in 2002, topped the rankings with a sales income of 30.4 billion (US$3.67 billion) in the first six months of the year, a year-on-year rise of 23 percent. It opened 432 outlets this year, increasing their number to a total of 4,789.

The Beijing Gome, Suning Group, and Dalian Dashang (Group) Co Ltd followed the Bailian Group, while the world's second largest retail company, Carrefour, came in fifth in the list.

Besides Carrefour, only five overseas-funded chain store operators entered the list, including Suguo Supermarket Co Ltd (seventh place), China Resources Vanguard Co Ltd (11th place), Wal-Mart (China) (17th place) and Jinjiang Metro (20th place).

Therefore, allegations that domestic players will lose their market share after the sector's opening-up has proven to be wrong, given that retailers from home and abroad have their own advantages and shortcomings, said Chen Wenling, a senior researcher with the State Council Development and Research Center.

China's WTO agreements have allowed it to put location and capital limits on foreign retailers in the past three years.

They are required to operate through joint ventures in which they can hold a maximum 65 percent stake. For companies opening more than three outlets, the foreign party cannot hold a controlling share.

This kind of opening is gradual and selective, aiming to give more breathing space to local players in the sector. The most drastic change has yet to come.

In accordance with its WTO commitments, China will fully open its retail sector for foreign competitors from December 11 this year.

China will abolish joint-venture requirements and end restrictions on the location and number of foreign-funded stores.

In the Administrative Measure on Foreign Investment in Commercial Areas issued by the Ministry of Commerce in April, it is also made clear that these promises will be implemented from December 11.

The impending restriction liftings are viewed as a most important opportunity by foreign retailers in China.

Top executives of foreign retailers have announced their expansion plans before the critical opening-up date.

Wal-Mart, the world's biggest chain retail operator, is to set up supermarkets in the city of Yuxi in Yunnan Province and Taiyuan, capital city of North China's Shanxi Province as a part of its launching of 15 new stores in China next year, starting Wal-Mart's penetration in second-tier cities.

German-based Metro said it will increase its current 21 stores by 50 percent next year.

B&Q, which has opened chain stores in Beijing, Shanghai, Suzhou, Kunming, Shenzhen and Hangzhou, plans to launch 10 to 15 shops a year in China.

The possible impact of the full opening up will include the regional expansion of foreign conglomerates to second and third tier cities, the entry of brand new foreign retailing conglomerates, and an increase in mergers and acquisitions, Wei said.

Chinese sellers have the edge over foreign rivals, strengthening their presence more rapidly at lower expenditures because of administrative means, Wei said.

Their understanding of the local market and well-developed sales networks enable domestic retailers to respond quickly and react flexibly to market changes.

Therefore, foreign retailers will still continue to team up with home retailing enterprises in the process of growing expansion in China despite their abundant capital, advanced management experience and global competitiveness.

"We are interested in choosing home retailers with very good location in key cities such as Beijing, Shanghai and Guangzhou because location is one thing that can not be regained," Wei said.

"Furthermore, central and western markets are a part of our expansion plan as B&Q has focused on penetration in East and South China market," he said.

To deal with increasing pressure from foreign retailers, local retailers have asked for help from the government and continued to improve their operating skills.

They called for upgrading of regulations and laws in the retailing industry to foster domestic retailing giants to rival their foreign counterparts.

Local industry has proposed to legislate the opening of giant stores, also targeting foreign-funded stores, which are usually large-scale.

The proposal requests legislating a hearing system for the opening of big stores, in order to prevent wholesale opening of big stores.

Zhang Xinsheng, board director with Shanghai Bailian, China's largest retailing group by volume, said that the government should carry out policies to guide and encourage mergers, acquisitions and joint ventures among domestic retailers.

Sales of the biggest retailer only accounted for 4.2 percent of sales of the US Wal-Mart in 2003.

A report released by China Chain Store & Franchise Association (CCFA) shows that growth rate of China's chain stores slowed down in the first half of this year due to consolidation of retailers.

Government support, especially in smoothing financing channels, is urgently needed, he said.

Local retailers, who are ambitious to fight foreign rivals by expansion, are suffering from penny-pinching.

And in terms of management skills, local operators have great room to improve, said Chen.

(China Daily November 18, 2004)