The following research report contains market research, analysis, statistics and business intelligence relating to research on Retail Sector Overview China.

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ABSTRACT
Registering total spending of $351.2 in 1998, China's retail industry slowed down from 1997 to a 6.7% annual growth rate last year. Though paltry by comparison to the explosive growth of 80% between 1993 and 1997, this growth is quite remarkable amidst the adverse economic environment. Full of a great deal of potential, the retail market in China is still undoubtedly growing. In this expanding but challenging marketplace, American businesses have established a strong presence. Many U.S. firms are poised to expand once WTO accession is achieved, as inclusion in the WTO will bring down many of the very trade barriers that have impeded the industry's growth in China. In the decade since China opened its retail sector to foreign investment, there have been many American successes in the consumer goods and fast food markets. In consumer goods, American brands have gained significant market shares - so much so that many U.S. brands, including Wrigley's, Head & Shoulders, Nike, Kodak, Coke, and Nabisco, have become ubiquitous staples of Chinese life. Franchised American food service outlets are also meeting with remarkable success. Changes in Chinese lifestyles, fascination with American culture, and demands for faster and more hygienic food service have led dozens of U.S.-based franchise restaurant chains to open hundreds of restaurants in China.

To help U.S. retailers to better understand the retail market in China, this report discusses market dynamics, government regulations and industry practices. In addition, Appendix II provides contact information for organizations cited in this report as well as other useful government and business contacts and reports relevant to China's retail industry.

Note: Official statistics collected from various sources are often inconsistent and are occasionally contradictory. In our efforts to present information objectively, this report presents various official estimates of market size and growth rates. In each table, data sources are cited. A. MARKET HIGHLIGHTS & BEST PROSPECTS -------------------------------------

Market Profile

Since retail industry reforms began in 1992, the Chinese government has adopted a series of policies, highlighted by the proclamation of the Provisional Rules on Retailing and Wholesaling in June, 1999. These policies have propelled the retail industry through a process of fundamental transformation. While shopping in the past meant visiting a run-down department store and choosing from a limited range of low-quality products, today's Chinese consumer is exposed to a growing number of sophisticated retail formats and wooed by a wide range of products. The existing retail formats in China are warehouse/ discount stores, supermarkets, department stores, convenience stores, franchised service or chain-store outlets, and specialty stores, shopping centers, catalogue sales, TV home shopping and e-commerce. One obvious development in this year's Chinese retail industry has been its drastically slower growth. Among the key contributing factors are the Asian economic crisis (which has taken a heavier than expected toll on China's economy), policy-guided reforms across a broad range of industries in China, and deflationary pressures and their trickle down effects on employment and consumer outlook.

The artificially propped-up Chinese currency, the RMB, has seriously reduced the competitiveness of China's once-profitable export sector, contributing to the shrinkage of the consumer sector. Millions of unemployed and laid off workers from closed or reformed State Owned Enterprises (SOEs) are struggling on subsistence levels of unemployment pay. Consumer confidence has sunk to low levels unseen since the early 1990's.

The combination of reduced buying power and heightened uncertainty over future earning power in many different walks of life has seriously eroded consumer ability and enthusiasm. While the unemployment rate is officially quoted at 8%, there are an estimated 100 million people who are either unemployed or under-employed, many of whom are in their current position due to the ongoing SOE reforms. Fearing that either they or a family member might be laid off in the sweeping and deepening economic reforms, consumers have been holding back on their purchases of consumer items. Reforms in other areas of the economy are eating into the savings of most of people. In early 1998, the State Council announced that the State-subsidized housing system was to be phased out over a 3-year period. Urban residents are required to purchase, albeit at subsidized prices, housing originally assigned them by their work units, or face a 5 - 10 fold increase in rent. In 1998, the social reforms originally implemented a few years earlier were accelerated, and the established all-inclusive State welfare system was dismantled. Under the new conditions, people are required to buy their own health and life insurance policies.

In the face of a consumer spending drought, manufacturers are competing fiercely for sales. A cutthroat price war begun in late 1998 is still raging across many industries and sectors. Prices have dropped by 10 - 40% on consumer items ranging from clothes to televisions to refrigerators. Most manufacturers and producers have seen their profit margins disappear.

In order to combat deflation and boost consumer spending, the central government has promulgated a series of policies intended to boost spending and attract investment. Chief among them are (1) the new Securities Exchange rules that require public companies to comply to more rigorous financial and supervisory guidelines, so that China's stock exchanges can operate in a more open and transparent manner; (2) a tax on interest from savings accounts, to reduce the incentives for keeping money frozen in banks; and (3) the Provisional Rules on Retailing and Wholesaling that continue to open the retail market to foreign investors. These policies are ideally supposed to work in conjunction with one another toward a common goal. Driving up stock market prices is intended to give people a sense of increasing wealth, which would make them more willing to spend and shop in more varied and improved retail shopping outlets built with foreign investment. How the retail industry and marketplace will respond remains to be seen.

Government Policies

Evolution of the Regulatory Framework:

Before July 1992, foreign investors were prohibited from setting up either Joint Ventures (JVs) or Wholly Foreign Owned Enterprises (WOFEs) to conduct retail or wholesale business in China. However, foreign invested manufacturers were allowed to sell certain percentages of the products they produced in China on the Chinese market.

In July 1992, the State Council formulated the Provisions on Foreign Investment in Retailing, permitting Beijing, Shanghai, Tianjin, Guangzhou, Dalian and Qingdao, as well as the five Special Economic Zones of Hainan, Shenzhen, Zhuhai, Shantou and Xiamen, to allow foreign investment in retailing on a trial basis. These Provisions prohibited WOFEs: companies were required to form JVs in order to enter the Chinese retail sector. Preferred foreign parties were major retailers with international prestige, advanced management expertise, and strong finances. In accordance with the Provisions, all retail projects were required to be submitted by local governments to the central government for examination and approval, and the qualifications of both the Chinese and foreign parties required examination by the State Administration of Internal Trade. Restrictions included a licensed business scope limited to retailing general domestic and imported merchandise and a prohibition of companies engaging in wholesaling or acting as import and export agencies, as well as decrees that JV retail company agreements must not exceed 30 years and imported merchandise at retail JVs may not exceed 30% of their total retail sales for any given year. Finallythe Provisions also stated that the Chinese party in such JVs must hold more than 51% of the equity share. In June 1995, the central government started further opening the retail industry to foreign investment. For the first time, retail and wholesale sectors were listed by the State Council on the Directory for Foreign Investment, though under the "restricted" category. This limited openness encouraged foreign investors. By the end of 1995, fourteen JV retail companies had been approved by the State Council, among which five were from Hong Kong; four from Japan; three from Thailand; and one each from Singapore and Malaysia respectively. By the end of 1997, there were 20 foreign invested JV retail companies in China officially approved by the State Council. However, it was estimated that local provincial and municipal authorities had approved close to 300 JV retail companies, competing with one another to draw foreign investment to their own areas, against repeated warnings and directives from the central government not to do so. In mid 1998, determining that the retail industry was "too disorderly", the central government issued an "Urgent Circular on Prohibiting Local Governments from Approving Foreign Invested Retail Companies". The nearly 300 foreign invested JV retail operations were required to either restructure to conform to the 1992 Provisions, or face closure at the end of that year. Tax authorities and Industry and Commerce Administration bureaus all over the country were instructed to examine the approval procedures and structure of JV retail companies. To stay in business, these JV retail companies were required to meet the following criteria:

Promised foreign investment had materialized and the JV firms were under sound management. No wholesale business was being undertaken. Chinese partners held over 51% of equity share. In chain store or warehouse store business, the Chinese partner held majority control equity share. Partnership agreements did not exceed 30 years in coastal regions or 40 years in inland and western parts of the country. On June 17, 1999 the State Council issued the Provisional Rules on Foreign Investment in Retailing & Wholesaling. Though some severe restrictions are still in place, these new provisions provide a more open regulatory environment for foreign investments in China's retail industry. This new openness represents a decision at the central government level to allow controlled competition in order to accomplish two vital goals: the acceleration of the further reform of and the introduction of modern management expertise to China's retail industry. Potential challenges for foreign investors still remain: the new openness is concurrent with the consolidation and entrenchment of China's retail and consumer industries forced by the 1998 - 1999 Asian economic crisis.

One of the most significant features of the Provisional Rules is that they stipulate, for the first time, the conditions under which foreign investors may form JV, cooperative retail or wholesale companies in China's four directly-administered cities under the central government, five Special Economic Zones and all the capital cities of provinces and autonomous regions. It is important that U.S. firms considering market entry into China understand these new rules. Please see Appendix I for a detailed description of these regulations.

Best Prospects

Chain Stores and Supermarkets

Chain stores have enjoyed substantial growth in China's retail industry in recent years. This is particularly true in the supermarket and convenience store sub-sector, as Chinese authorities slowly remove traditional wet markets in order to improve hygiene, traffic flow, and utilization of real estate in major cities. By the end of 1998, there were more than 1,000 chain-store companies with 21,000 outlets combined throughout the country. According to the latest statistics provided by the China Chain Store and Franchise Association, the total sales of chain stores in China exceeded $12 billion in 1998, up 70% over that of 1997. In the first quarter of 1999, these chain stores earned $49.4 million in profit, up 26.9 percent from the same period in 1998. (China Commercial Information Center). Although chain stores are primarily concentrated in Beijing, Tianjin, Shanghai, Guangdong and other open coastal cities, inland provinces such as Sichuan, Yunan, and Gansu have also started chain store operations. The total sales volume of supermarkets, convenience stores and large warehouse stores hit $7.2 billion in 1998, up 43% from 1997. During the past five years, 71 companies in this group generated annual sales exceeding $12 million, while 121 companies generated annual sales exceeding $6.0 million. China's two largest chain supermarket and department store companies - the Hualian Group and Shanghai Lianhua, with more than 350 branch stores nationwide combined, had annual sales of $36 million each. TV Home Shopping

TV home shopping has turned out to be a new retail trend in China and has been very popular throughout major cities. The Quantum network, an American-headquartered home shopping network, has been broadcasting a few hours in Guangzhou and Shenzhen since November 1996. Quantum also has plans to cover Shanghai, Beijing, Chengdu, Tianjin and Dalian through cable or terrestrial networks, and ultimately expand to a 24-hour X 7 days service.

Home shopping is expected to spread quickly in China's major cities. Urban ownership of color TVs was 105.4 per 100 households in 1998. By the end of September, 1999, there were over 100 million landline telephone subscribers and over 34 million mobile phone users in China. With more television and telephone owners, companies are marketing their products on TV and customers can order their desired products directly. Another point to note is that Chinese people spend most of their leisure time watching TV, especially at night. Television has become an import part of life to most Chinese, and it has a great deal of influence on people's opinions. Furthermore, Chinese people place high trust on TV stations, which are State-owned and assumed by most Chinese people to be credible and trustworthy. Convenience, informative commercials, moderate prices, detailed presentation, guaranteed after-sale services and door-to-door delivery are the main attractions of TV home shopping in China. The TV home shopping business is doing very well, according to Zhao Jingjian, general manager of Beijing Television Home Shopping Channel. Some of US&FCS's most recent success stories involve U.S. exports sold through China's TV Home Shopping system.

Certainly, there are obstacles to this new retailing activity. Payment methods are still rather complicated in China, as credit cards are not widely used, and check-writing remains the privilege of business and government entities only. Cash-on-delivery is the most common way to pay for merchandise ordered from TV Shopping Centers. In addition, many Chinese customers still prefer being able to touch and feel the products they are thinking of buying rather than merely seeing them on a TV screen. Finally, for most female customers, store shopping (and, to a large extent, window shopping) is a popular and practical form of relaxation and entertainment. Despite the current holdbacks, however, TV home shopping has a firm footing in the retail marketplace in China.

Franchised Service Outlets

1) Franchised Food Service With the acceleration of the pace of life comes a decrease in spare time. The younger generation's eagerness to experience the novelty of Western cooking and the flourishing tourism market are among the factors that explain the booming fast food industry in China. Urban Chinese highly value customer service, cleanliness, efficiency and a pleasant dining atmosphere associated with American fast food establishments. Many international fast food companies have established operations in China. Among those currently in operation are McDonald's, KFC, Pizza Hut, Baskin Robbins, Subway, Schlotzsky's Deli, Haagen-Dazs, Dunk'n Donuts, Carvel Ice Cream, and Starbucks Coffee.

2) Franchised Professional Services

The professional services market is less competitive because the concept of professionalism is still not well understood among domestic companies. A few Western service companies have been licensed to conduct business in China, providing consulting, advertising, public relations, accounting, and copying services, among others. Kinko's, Xerox and Kodak, among others, have established successful business presences in China. Companies offering such services as remote learning, out-sourced employee training, are in the market entry stage. There is great business potential for many other types of franchised services, such as temporary employee services, personal services, maintenance services, etc. 3) Automobile After-Market Service

With rising disposable incomes, some Chinese families are now able to afford their own cars. Average ownership rate of private cars is 0.25% among urban households. Beijing has registered more private vehicles than any other city in China: more than 400,000 by the end of 1998. Shanghai, by comparison, has just over 30,000 private vehicles, due to stringent controls over vehicle registration. Although the number is currently low, it is increasing rapidly. The environmental clean vehicles drive has taken on an aggressive agenda, which requires all existing non-fuel-injection vehicles to be retro fitted and to pass inspections. This will fuel the auto after-market service sectors' boom.

As demand for automobile after-market services is soaring, more and more multinational companies and private enterprises compete to establish new service centers in China. At present, most automotive service shops are small, family-owned companies, although some fleet operators operate their own maintenance facilities. Catalogue Sales

Mail-order service and direct-mail merchants are growing fast in China. An increasing number of Chinese consumers is becoming familiar with the concept of mail order shopping. People in major cities have been frequently exposed to mail order advertisements in local magazines or mail order catalogues, and some have actually begun using this new retail format to purchase products. Products that have strong direct-mail sales potential in China include apparel, cosmetics, small appliances and electronics, jewelry, housewares, music, books, collectable stamps and coins, sporting goods, packaged foods and seasonings, fashion accessories, educational games and materials, natural health supplements, and sewing patterns.

Although currently the vast majority of mail order transactions in China are pre-paid by postal money orders, more and more customers are finding it convenient to purchase products through mail order service thanks to the growing popularity of debit cards, credit cards and, in the not too far distant future, personal checks. Long the black sheep of the China Telecom system, the Postal Service was slow and unreliable. In early 1999, it was spun off to be an independent profit center, as yet another measure by the central government to put pressure on inefficient State-owned companies. Since that time, the Postal System has made noticeable progress. The mail order business still holds much potential as a cost-effective means of getting merchandise to customers' homes. B. COMPETITIVE SITUATION ------------------------ Domestic Competition

As Chinese government recognizes the logistical advantages of chain supermarkets/hyper markets, the State Administration of Internal Trade has begun to promulgate policies to stimulate the development of domestic chains. Encouraged by favorable policies and access to preferential loans for expansion, Chinese companies have formed alliances that would allow their stores to be operated and managed jointly as one chain of outlets, in order to develop economies of scale. Examples of such alliances include the Hualian Group and Zhongshang Group (CCG) of Beijing, which together operate a chain of 426 stores. Some of China's major chains are Lianhua, Tiankelong, Chaoshifa, Mingzhu, Yansha Wangjing, and Haolinju.

A brief introduction to some leading domestic supermarkets/hyper markets:

Beijing Tiankelong Commercial Co., Ltd. is one of the largest domestic supermarkets in Beijing. By the end of April 1998, it had 13 stores in the Beijing area. These stores ranged in size from 100 square meters to 2,800 square meters. It has also opened stores in Macao and Russia. Chaoyang Jian Hyper Market Co., Ltd. features daily consumer goods, restaurants, an entertainment area, and a supermarket with an area of 20 thousand square meters. It plans to open another store next year.

Beijing Wangfujing Department Store is one of the largest traditional retail outlets in China, boasting over 14,000 square meters of retail space. After raising capital on the Shanghai stock market in 1995 through an IPO, the company opened another 3 shopping malls in Chengdu (Sichuan Province), Wuhan (Hubei Province), and Nantong (Jiangsu Province).

Beijing Chaoyang Mingzhou Chain Store Company is a convenience chain store company affiliated with the Chaoyang Non-staple Food Wholesale Company. It was established in June, 1994. Presently there are 41 outlets, one distribution center with 2,000 square meters, and 1,000 employees. It has 12,000 square meters of retail space. The company sells 5,000 kinds of non-staple food, foodstuffs, beverages, and daily consumer goods. In 1997, total sales amounted to $28 million.

Third Country Competition

Of the top 50 retailers in the world, a dozen have entered the China market. In addition to Wal-Mart and IGA from the U.S., the market also includes C&C from Germany, Ahold from the Netherlands, Auchan, Carrefour, Promodes, and Pinault-Printemps-Redoute from France, and Ito Yokado and Daiei from Japan. Brief Introduction to Major Foreign Retail Outlets:

CTA Makro Commercial Co. Ltd., a JV with Holland's SHV Makro, is one of Beijing's largest warehouse stores. It is one of the two foreign retailers granted nationwide operation licenses. It has successfully opened two stores in Beijing.

YAOHAN is a Japanese retail giant with its China headquarters in Shanghai. Its operations in China already span a variety of retail ventures, including its $230 million Nestage (department store) in Shanghai, the second largest outlet store in the world. Other ventures include: a supermarket chain, fast food outlets, convenience stores, boutiques, and the International Mega Mart wholesale/retail members' club. However, analysts say that only the fast food chain is doing particularly well. One analyst says the problem in China has less to do with merchandise management than with the bigger question of management control. Yaohan is not actively managing any of its retail operations in China and this may be a factor in its limited success. Chinese managers often act in accordance with the wishes of their State-owned Chinese parent company, regardless of whether such wishes are in the best business interests of the operation, resulting in lax management and operations controls.

ITO YOKADO of Japan, in a JV with the China National Sugar & Wines Group Corp., established the Huatang Yokado Company in October 1997, with registered capital of $65 million. Huatang Yokado plans to open three shops in Beijing within the next three years, after successfully opening its first 13,000 square-meter store in Shilipu on the eastern outskirts of Beijing. The company plans to open other big chain stores in Shanghai and Tianjin.

SOGO, one of the largest Japanese department stores, has been in business for 168 years. Sogo has 43 chain stores worldwide generating annual sales in excess of $20 billion a year. Their 5th chain store in greater China was opened in Beijing on June 24, 1998. (The other four outlets are in Taiwan and Hong Kong.)

CARREFOUR operates 314 stores in 14 countries with annual sales of over $28 billion. Carrefour China Ltd. (Sino-French joint-management company) has opened 9 supermarket chain stores in Beijing, Tianjin, Shanghai, Chongqing, and Shenzhen. Carrefour's first hypermarket, located in the Chaoyang district of Beijing, become an instant success upon opening in 1995. Its success has been attributed to its clear focus on mass market rather than upscale goods. Carrefour limited the proportion of imported merchandise sold in its stores to 10%. It has also concentrated on bypassing wholesalers in China, buying the bulk of local goods directly from producers. It plans to open 30 stores across China within 10 years.

The Beijing Parkson Department Store, a $4.5 million JV company set up in 1994, initially concentrated in luxury goods (including a substantial proportion of high-priced foreign brands). Fifty thousand shoppers flocked in each day to visit the new store. This store is a partnership involving Malaysia's Lion Group, and is located on the intersection between Beijing's main east-west thoroughfare and the second ring road. Parkson plans to open 100 department stores in China by the year 2000, with a total investment of $700 million, at an average store size of 15,000 square meters. U.S. Chain Stores

By mid-1999, WAL-MART China has opened seven stores, including three stores in Shenzhen, and one each in Dongguan (Guangdong Province), Kunming (Yun'nan Province), and Dalian (Liaoning Province). Its ambitious plans call for twenty stores in China by the end of 2000.

HOME WAY, through a licensing arrangement with a Chinese company, has opened five stores in Tianjin -- two Home Ways, two Home Lands, and one Home World, as well as two stores in Xi'an. PRICESMART, a locally-owned discount warehouse club store modeled after the U.S. Price Club, opened three stores in Beijing. The success of PriceSmart has shown that it has vigorous potential in China.

These world-class retailing stores have introduced a new type of shopping environment for Chinese consumers. This style of retailing has been successfully established in China, and will have an historical impact on the development and reform of Chinese retailing.

McDONALD'S fast food restaurant entered China in 1992. There are more than 210 restaurants all over China, with 49 restaurants in Beijing alone, and the franchise continues to expand.

KENTUCKY FRIED CHICKEN fast food restaurant opened its first store in Beijing in 1987. At present there are 260 restaurants across China, 21 of which in Beijing.

SCHLOTZSKY'S Food and Beverage Co, Ltd., a master franchisee for the territory of Beijing, opened its first restaurant in June, 1998. Three other restaurants are being planned for Beijing.

ROGERS Food & Beverage Co., Ltd. has opened 5 fast food restaurants in Beijing and one restaurant in Xi'an. Two restaurants in Beijing have recently been closed due to a lower volume of business than was anticipated.

American NIKE Inc. entered China in 1984 and established their China company in 1996. Currently there are 500 Nike outlets and sales counters in China.

KODAK products entered China in the early 1980's. Currently there are more than 4,000 Kodak outlets in China and more than 80 outlets in Beijing.

American fast food company SUBWAY entered China in 1995. Presently there are six stores in Beijing and two in Tianjin. Subway plans to open stores in Shanghai in the near future.

C. MARKET ACCESS ------------------

There are four types of established chain stores in China: Reformed old-style Chinese neighborhood retail stores. Existing corporate groups developing branches in a chain-store format. Newly established chain store companies. JV companies.

There are seven categories of chain stores:

Large department chain stores, with shop floor space of over 10,000 square meters. Supermarket chains, selling staple and non-staple foods as well as general merchandise. Convenience stores, selling anything from grains to cooking oil, from non-staple foods & beverages to every-day necessities. Exclusive outlets, selling their own brand name products. Fast food chain stores, selling standardized popular Quick Service Restaurant (QSR) food. Service industry chain stores: photo developers, dry cleaners & laundries, beauty and hair saloons, etc. Hardware chair stores: hardware items, materials, building materials, and machinery spare parts. By China's definition, retail shops are divided into 8 categories: Department stores. Supermarkets. Big comprehensive merchandise supermarkets. Convenience stores. Warehouse discount. Specialty stores. Exclusive distribution stores. Shopping centers.

U.S. firms that are planning market entry into China are well advised to understand China's retail industry structure, know the relevant rules and regulations, and establish JVs with a suitable partner. D. MARKET ACCESS ----------------

More and more chain stores and retail franchisers, i.e., Kentucky Fried Chicken, Pizza Hut, Dominos Pizza, Kodak, Coca-Cola, and Subway, have moved their brands and operating systems into China, and they are doing well. Statistics show that the chain stores, through franchising and opening corporate-owned stores, is the most dynamic element of the retail industry. At growth rates of 20%-50%, the chain store sector is outstripping the traditional department store. The Ninth-Year Plan (1996-2000) set the goal of 1,500 franchise and chain store companies nationwide with 60,000 outlets. The target sales volume is $14.5 billion.

Legal Issues

Chain stores provide a great opportunity to enter China's retail market. In the retail sector, attention should be focused on four major pieces of legislation issued in 1997 by the State Administration of Industry and Commerce (SAIC), the State Bureau of Internal Trade (SBIT), and the Ministry of Finance (MOF).

In their competition for foreign investment, local and provincial governments often offer various concessionary conditions and promises of final approval of JV companies. In the retail industry, the central government guidelines provide that all JV retail projects be reviewed and approved through a central-government controlled process involving the State Administration of Internal Trade (SAIT), State Development Planning Commission (SDPC), Ministry of Foreign Trade Economic Cooperation (MOFTEC), and ultimately the State Council. In the past, the process typically took about 18 months to complete.

Many foreign retailers, such as Carrefour, Park'N Shop, and PriceSmart quietly set up JVs whose structure does not conform to central government Provisions, without central government approvals. Typically, they structure these JVs through management contracts and leasing arrangements for equipment and property. Profit goes to the shareholders in the form of management consulting fees, lease proceeds, etc. There was a crackdown on such practices in late 1998, but compromises were reached between these companies and the central and local governments so that the companies continue to operate as usual. General restrictions on foreign investments in the retail industry are expected to continue for some time, depending on the pace of further reforms in China's economy and retail industry, and the WTO accession conditions that are finally agreed upon Until then, U.S. retailers who wish to enter the China market are advised to prepare to face the challenges and devise strategies to overcome these regulatory obstacles.

Strategies

To draw from the experiences of many foreign retailers, the following factors should be taken into consideration when developing a strategy for China:

Firms should have an aggressive, coherent, well-researched 5-year plan for market entry and expansion. Management and financial resources should be thoroughly prepared, creating a partnership structure that facilitates the expansion. To avoid repeating the same struggles in each city with each new store, an entry and expansion legal structure, which can deal with regulatory obstacles, should be established, and one should approach the market with long-term objectives and adopt company policies for such an approach.

The retail format and merchandise selection should meet the needs of local consumer and market conditions, and firms should avoid rigidity while encouraging creativity. Learning from the experiences of others would also be beneficial in approaching the market, and networking is important.

Retail chains, particularly supermarkets, will continue to hold an important position in the growth of the retail industry. Foreign retailers should decide if they are in the right business sector to enter China now. If so, an aggressive strategy should be adopted with the dedication of necessary financial and management resources to execute it. Companies should also be well prepared to accept low margins and low volumes during the start-up period. The best opportunities in the new phase of retail industry growth in China would be for mass discounters, supermarkets, convenience chains stores, and specialty chain stores.

Despite the setback in 1998, China's retail industry will sustain strong growth in the coming years. It will mature and transform into a more modern, efficient system over time. It is up to the innovative and courageous few to make the difference and bring about change in China's promising retail industry.

TRADE PROMOTION OPPORTUNITIES AND CONTACTS ------------------------------------------

Trade Events

2000 China International Supermarket Equipment & Technology Exhibition (Chain-store China 2000) Date: March 20-23,2000 Frequency: Annual Location: China International Trade Center Exhibits: Equipment for supermarket and distribution center and equipment and technology for chain-store information system Organizer: China International Exhibition Center, CCPIT Beijing Sub-Council Add: A1, North Street Qingnianhu, Andingmenwai, Beijing 100011 Tel: (8610) 6422-7788 ext. 628, 624 Fax: (8610) 6425-1287 Email: mailto:langying@biec.com.cn Project Manager: Ms. Liu Lanying

International Supermarket and Retail Exhibition (Chinamart 2000) Date: November,2000 Frequency: Annual Location: China International Exhibition Center Exhibits: Modern equipment and technology for supermarket and stores; facilities; commodity display, sale, storage, and packing equipment; restaurant, entertainment and recreation facilities etc. Organizer: State Bureau of Internal Trade, US Clause Company Add: Rm. 5207 Ziyu Hotel, 55 Zengguang Rd., Beijing 100037 Tel: (8610) 6841-2998/5250 Fax: (8610) 6841-1728 Email: ejk@public3bta.net.cn Project Manager: Chen Ling Contact List: see Appendix II

Appendix I - China Retail Sector Overview Update

Brief transliteration of China's Provisional Rules on Foreign Investment in Retailing and Wholesaling in China

A foreign invested JV retail or wholesale company must satisfy the following requirements:

Foreign investors must have strong financial standing, advanced retail management experience and marketing expertise, extensive international sales network, good reputation and sales record. The JV retail or wholesale company must also commit to increasing export of Chinese-made products. The foreign investor must have average annual sales of more than $2 billion and assets of more than $200 million in the previous year. The foreign investor must have average annual wholesale sales of $2.5 billion and assets of more than $300 million in the three years prior to applying.

The Chinese partner must meet the following criteria:

The Chinese partner must be an established retail/wholesale distribution company with big assets and operational strength. The Chinese party must have annual sales of overRMB 50 million (inland and western parts of China RMB 30 million) during the preceding year. If the Chinese party is in the retail/wholesale business, it must have annual sales of over RMB 300 million (inland and western parts of China RMB 200 million). If the Chinese party is in foreign trade business, it must have annual sales of over $50 million (inland and western parts of China $30 million). In addition, a JV retail/wholesale company must comply with the following criteria:

Abide by all relevant laws, regulations and rules in China Comply with commercial development plans of the cities where these companies are located. A JV retail company must have registered capital no less than 50 million RMB (inland and western parts of China 30 million RMB). A JV wholesale company must have registered capital of over RMB 80 million (inland and western parts of China RMB 60 million). For JV retail/whole companies with more than three chain stores (except convenience stores, professional stores and specialty stores), the Chinese party must hold more than 51% equity share. Special treatments may be granted to companies with good track record and whose foreign party sources a large amount of products from China and help increase China's exports. The foreign partners may hold dominant shares only after the approval from the State Council. For JV retail companies such as convenience stores, professional stores and specialty stores, the Chinese party must hold no less than 35% equity share. For other types of JV retail/wholesale stores, the Chinese party must hold more than 51% equity share. JV retail/wholesale companies can set up branch stores with direct-investment. The JV companies are not allowed to sell their franchise rights to Chinese franchisees. Partnerships can be as long as 30 years in coastal regions or 40 years for inland and western parts of the country. When foreign partners sign contracts with JV retail/wholesale companies to permit them to use their trade marks, logos or to transfer technology, the foreign party can charge no more than 0.3% of total annual sales of the JV companies for a period of no longer than 10 years.

Approval procedures for JV retail/wholesale companies are also spelled out: Parties submit feasibility studies and relevant documents to the local Foreign Trade and Economic Commission for review. If approved, the Commission then submits the documents to the State Economic and Trade Commission (SETC) for review. The SETC will then consult the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) before approval. If approved, parties should submit the JV contract and the Articles of Associations of the JV company to MOFTEC through the local Foreign Trade & Economic Commission. After receiving the approval, the JV retail/wholesale company must register with the Administration of Industry and Commerce to obtain a business license by presenting the Approval for Establishing a JV issued by MOFTEC. Appendix II - China Retail Sector Overview Update

Chinese Government Contacts:

State Administration of Internal Trade 25 Yuetanbeijie Beijing 100834 China Dept. Of International Cooperation Tel: (8610) 68391145,68391143 Fax: (8610) 68391148 Contact: Xue ChanBin

State Bureau of Internal Trade Marketing Reform Department Yuetanbeijie Beijing 100834 China Tel: (8610) 6839-13-17 Fax: (8610) 6839-2210 Contact: Ms. Guo Geping

Department of Planning and Regulations Tel: (8610) 68391760 Fax: (8610) 68391720 Contact: Mr. Ling Dawei

China Chain store and Franchise Association Tel: (8610) 6839-1317/1357 Fax: (8610) 6839-2210 Email: mailto:Chainsch@public.east.cn.net Contact: Mr. Pei Liang

China Council for Promotion of Int'l Trade (CCPIT) Fuxingmenwai St. Beijing, China 100860 Information Service Division Economic Information Department Tel: (8610) 68013344-8724 68030869 Fax: (8610) 68030747 Contact: Lu PengQi

Major Business Contacts:

Continent Hypermarket(Kang Di Xiang) Tel: (8610)6760-9911 ext. 8059 (8610) 64069372 (Headquarter in Beijing) Fax: (8610)6760-6174 2nd District,15 Fangchenyuan Beijing 100078 Contact: Liu Yongmei, Assistant General Manager

The Home Way 1 Erjinhlu, Dongli Development Area, Tianjin 300300 Tel: (8622) 2499-0606 Fax: (8622) 2499-4567 Contact: Mason L. Ludlow

CTA Makro Commercial Co. Ltd. No. 19 Da Hong Men West Rd., Feng Tai District, Beijing 100075 P.R.C. Tel: (8610) 67251166-102 67254452 Fax: (8610) 67254452

WAL MART CHINA CO., LTD. 4/f., HuQing Block, Lake View Garden, Honghu Road, Luohu District, Shenzhen Guangdong Province, China 518020 Tel: (86-755) 560-7095 (86-755) 561-7078 Contact: Joe Hatfield

Wellcome Company Ltd. 7/f East, Asia Terminals Ctr-A, Berth 3, Kwai Chung Container Terminal, Kwai Chung, N.T. Hong Kong. Tel: 00852-2489-5888 00852-2489-5738 Fax: 00852-2481-7558 Contact: David Young

Beijing Yansha Wangjing Wholesale Warehouse No.9 North East Sihuan Rd, Chao yang District Beijing China.100015 Tel: (8610)-6435-5145 6437-1431-405 Contact: Mr. Lu JingYue

Beijing PriceSmart Membership Shopping Companies Group A 18 Xueqin Rd, Haidian District, Beijing China 100083 Tel:(8610) 62920262;62927081-3 Fax:(8610) 62927079 Contact: Liu Zhongyi

Carrefour China No. 327, He Qiao Building, 8A Guanghua Rd., Chaoyang District, Beijing 100026 P.R. CHINA Tel: (8610)65079990/91/93 Fax: (8610)65079994 Contact: Jean Christopher PARK'N SHOP SUPER STORE Supermarkets of Hutchison Whampoa Ltd. No. 906, 9/F, Full Link Plaza. No. 18 Chaoyangmen Wai Ave., Beijing 100020, China Tel:(8610)6588-1899 Fax:(8610)6588-1900

Wumei Shopping Center No: A-5 Cui Wei Road, Haidian District, Beijing. Tel: 8610-6828-4556 8610-6827-4587

Friendship Supermarket No: 7 Sanlitun Road, Chaoyang District, Beijing Tel: 65323025

Good Neighbor Supermarket No: 41 Erlong Road, Xicheng district, Beijing Tel: 66021963

LuKei Supermarket No 14 Zhong Louwan, Dongcheng District, Beijing Tel: 8610-64016863

Tian Kelong commercial co., Ltd. No: 6 Baiyun Lu, Xicheng District, Beijing 100045 Tel: 8610-63267408; 63490813 Fax: 8610-63267407 Contact: Mr. Yang Qirui

Beijing Glory of The City Supermarket New City Plaza No: 18 Building one street of Fang Guyuan, FangZhuang Tel: 67647280

Henderson Center-Beijing Supermarket Co. Ltd. No.18 Jianguomennei Avenue, Beijing. Tel: 8610-65183188; 65183688 Fax: 8610-65183988

Beijing Junefield Sogo No: 52 Xuan Wumen Wai street, Xuanwu District, Beijing Tel: 8610-63103388-7001

Ito Yokado No: A 3 Shilipu Chaoyang District, Beijing Tel: 8610-65565566

Kodak (China) Lte Beijing Liaison Office 4th floor, Beijing Hua Heng Office Building No. 31 South Binhe Road, Xuan Wu District Beijing, China 100055 Contact: Liu Bo

Nike Inc. Beijing Representative Office. 1006 Lucky Tower, A Bldg. 3 Dongsanhuan North Rd, Beijing. P.R.C. 100027 Contact: Nancy Chen

Subway Golden Bridge Mansion, West Side of China World Trade Center, A1, Jianguomenwai Street, Beijing Tel: 65064466-6032/6031 Fax: 65064466-6032

Beijing Aidewei Food & Entertainment Co., Ltd Mr. Peter Xu Assistant to President Room 201-206, Silver Bridge Hotel, 44 Center Rd. North Third Ring, Beijing Tel: 6238-6822 Fax: 6238-6833

Baskin Robbins Gregory Bach Chief Representative C/O China Travel Service Tower, Room 2501. 2 North Sanhuan Dong Rd Chaoyang District, Beijing 100028 China. Tel: 8610-6461-2486 Fax: 8610-6461-2484

Beijing Dunkin Donuts Food Company Ltd. Mr. Cameron Bozorgzad General Manager 11th Building, 2nd District of Anzhei xili, Chao Yang District, Beijing 100029, China. Tel: 8610-64240228; 64240229 Fax: 8610-64240231

Beijing Rogers. Food & Beverage co., Ltd. Full Link Plaza Restaurant 4/F., Full Link Plaza, Chaoyangmenwai Avenue, Beijing 100020 Tel: 8610-65881279 Fax: 8610-65881278 Contact: Mr. Cheng Honglin

Beijing Carvel Food Co., Ltd. Room 405, Sichuan Building, NO. 102, Lei Lishi Rd. Beijing 100037 Tel: 8610-68350888 Fax: 8610-68350988 Contact: Wang Ting ( Vice Manager)

Beijing Quanjude Roast Duck Corporation. No. 14 Qianmen West St, Beijing. 100051 Tel: 8610-63048992 Fax: 8610-63048990 Contact: Jiang Junxian ( General Manager)

Yoshinoya Restaurants Xi Zhimei street Beijing, China Tel: 62216043

DISCLAIMER
Information in this report relies on sources including Government Publications, Opinions of industry experts and other public sources. Infomat can accept no responsibility for the accuracy or completeness of such information or for loss or damage caused by any use thereof. All prices subject to change without notice.

$3500 USD
For the 2008 Edition

Published: 2006 August
Market: Mens Womens Childrens
Region: China
Industry: Retail
Pages: 45
Delivery: 7-12 Business Days
SKU: infre0000311