TWO Japanese companies look set to become partners in the first chain store joint venture in China which has State Council approval and import and export rights. Itochu Corp, Japan's largest trading house, and Ito-Yokado Company, the country's second-largest supermarket chain, have signed a letter of intent with China Sugar and Wine Corp for the joint venture which should be formalised soon. Negotiations over a second planned joint venture store with leading Dutch warehouse chain, Makro, are continuing. The director of the Ministry of Internal Trade's international co-operation department, Wang Minghong, said: 'We decided late last year to start with two pilot chain store joint ventures and will expand [their] scope depending on the market situation.' What makes the two pilot projects different from existing chain store joint ventures is that they will require State Council approval and will enjoy import and export rights. Foreign companies were not allowed to be involved in chain-store businesses under current policy, but some local governments had found ways to get around it, Mr Wang said. 'The two [new] joint ventures will be more competitive than other chain stores because import and export rights would enable them to save costs on middlemen,' he said. Although the State Council had agreed that chain stores in Shanghai and Beijing could be opened to foreign participation, the two joint ventures, together with distribution centres, would be set up in Beijing. They would be allowed to sell consumer and agricultural products, with no restriction on the number of stores the two joint ventures could open, Mr Wang said. Foreign companies would not be allowed to take majority stakes, he said. This restriction is the sticking point in the second warehouse-style joint venture under negotiation between Makro and China National Native Produce and Animal By-products Import and Export Corp, which is controlled by the Ministry of Foreign Trade and Economic Co-operation. Although a letter of intent was signed, the two parties had not agreed on the holdings they would have in the joint venture and the tenure of the contract, Mr Wang said. In the Itochu Corp and Ito-Yokado Company deal, the Chinese partner in the 30-year contract will hold a 51 per cent stake, with the rest held by the Japanese. Mr Wang said construction of the first headquarters for the joint venture was expected to start this year. He said Beijing was still examining the possibility of opening the wholesale market to foreign firms. He denied the pace of liberalisation in the retail sector had slowed as a result of China's failure to secure an early entry into the World Trade Organisation (WTO) dampening its enthusiasm for reform. 'A panel of experts is studying the advantages and challenges in opening the wholesale market to the outside world but has yet to reach a conclusion,' Mr Wang said. He said the wholesale market might not be ready for liberalisation this year. 'It's a sensitive issue internationally therefore we have to be very cautious,' he said. There would be far greater impact in the liberalisation of the wholesale market than the retail market and the opening of the retail market was still in a trial stage, he said. David Chin, associate director of a business consultancy unit of SRG China, said: 'The chain stores concept may help pave the way for liberalising the nation's wholesale market since the distribution centre of a chain store also involves a certain degree of wholesaling business.'