Picking an alternative route into retailing

Carrie Lee

SHORT-CUTS are at hand for foreign retailers aiming to tap the mainland market without seeking joint-venture approvals, an investment consultant says.

''The easiest way to set up a retail business in China is through co-operation with local department stores,'' said Mr Raymond Xie Rudong, managing director of investment consultancy China Law & Investment.

This meant a foreign investor could establish on the mainland a company which then co-operated with local retailers.

''Once the company is set up, it becomes a Chinese legal entity. So any co-operation with other Chinese companies will be regarded as a domestic co-operation, and does not need to be approved by the Ministry of Commerce,'' said Mr Xie.

He added this was the most popular form of operation for foreign retailers, including the Giordano outlets in Shenzhen and Shanghai.

Last year, China opened its retail sector to allow approved foreign investors to operate retail joint ventures in Beijing, Tianjin, Shanghai, Guangzhou, Dalian, Qingdao and the country's five special economic zones - Hainan, Shenzhen, Shantou, Xiamen andZhuhai.

But the Ministry of Commerce has granted only a few approvals to foreign investors.

They include the Chia Tai group of Thailand and Mr Stanley Ho in Tianjin, and Yaohan in Shanghai.

''But there are many different ways for a foreign investor to enter into it,'' said Mr Xie.

Retail rights could be gained through developing commercial complexes or hotels with Chinese partners, he said.

Also, foreign companies could enter the retail sector by offering management skills to a local retailer in return for an agreed return.

Or the foreign party could buy shares in an existing department store to turn it into a joint venture.

''From the foreign investor's point of view, this kind of co-operation is attractive as the purchase of a stake in an existing store would give him instant access to the Chinese retail market,'' Mr Xie said.

But he warned that the country's burgeoning retail industry posed potential problems.

''As retail joint ventures are a new development in China, the government has not yet issued any relevant regulations to the public . . . Such uncertainty must indeed be a headache to foreign investors,'' he said.

Also, establishing a joint venture with an existing department store could mean expensive reconstruction.

Keen competition for good locations would also make a department store costly to set up, Mr Xie said.

The devaluation of the renminbi would be another cause for worry. ''It eats into foreign investors' earnings from mainland sales.'' Mr Xie was speaking yesterday at a seminar organised by Aberdare Consultants HK.