Foreign partners can have a controlling share in some local retailers for the first time, a senior government official has said.

China will permit overseas investors to own up to 65 percent of domestic commercial firms such as convenience stores with fewer than three outlets in provincial capitals and Shanghai, Beijing, Tianjin and Chongqing, said Huang Hai, chief economist of the State Administration of Internal Trade.

“We will gradually cancel the restriction that foreign partners can’t get the controlling side,” he said. “The introduction of foreign retailers will give Chinese consumers a wider range of choice.”

Foreign retailers said they expect a complete lifting of restrictions after China enters the World Trade Organization.

“Easing the limitations on the commercial sector is only a matter of time and the general trend,” said Huang Zhongjie, international auditor manager of Metro Jin Jiang Shopping Center Co., Ltd., a Chinese arm of Metro AG from Germany. “That’s good news for foreign investors. As more foreign capital enters the market, the competition will heat up. Some small, inefficient operators may be washed out.”

China’s 10 percent annual growth in retail sales since 1990 creates opportunities for both local and foreign investors.

“For foreign investments in the retail sector, we will have no requirements on store number, location and share ownership three years after China enters the World Trade Organization,” Huang said. “Our concern now is whether or not to loosen requirements on hypermarkets or warehouse malls.”

Other than giant warehouse malls such as Wal-Mart, domestic retailers still have an edge over foreign firms because of limits on foreign investment. For every 1,000 Chinese-owned commercial companies in China, there is only one firm with foreign investment.

The move is the central government’s latest boost to opening up the commercial sector. Eight years ago, China approved foreign investment in the commercial sector in six cities and five special economic zones on the mainland.

When the State Council permitted two joint ventures in retail in Beijing in 1995, the Chinese side had to own at least 51 percent, and deals were only valid up to 30 years. Since then, the restrictions have been loosened gradually, but domestic partners must still have a voting majority.

To date, the State Council has approved 28 joint ventures in the retail sector, while local governments nationwide endorsed 277. Current foreign investment totals US$2 billion.

(Shanghai Daily)