New Regulatory Developments in China

1
Trading and Distribution in China The New
Regulatory Regime By Adam W. Schorr

COUDERT BROTHERS LLP 333 South Hope Street, 23rd
Floor Los Angeles, CA 90071 TEL [phone]
2900 FAX [phone] E-MAIL
ASCHORR_at_COUDERT.COM

2
Chinas Trade Commitments under the WTO

• By December 11, 2004
• China shall grant all enterprises the right to
  trade in all goods throughout China.
• FIEs shall have rights to engage in trade no less
  favorable than Non-FIEs.

3
Current FIE Import/Export RightsGeneral FIEs

• FIEs may import machinery, equipment, raw
  materials for manufacturing or operational needs.
• FIEs may export products they manufacture.

4
Current FIE Import/Export RightsSpecial FIEs

• Only Sino-Foreign Joint Venture Foreign Trade
  Companies have substantial trading rights
• Foreign majority ownership allowed
• 6M minimum capital requirement
• May only engage in trade of approved list of
  goods
• May engage in wholesale activity
• No geographical restrictions
• Some Trading Rights for FIE holding companies and
  RD centers

5
New FIE Import/Export Rights

• New regulations effective as of July 1, 2004 all
  FIEs will be allowed to engage in the import and
  export of a wide range of goods.

6
Current FIE Rights for Distribution of Goods

• Currently retail/wholesale business only open to
  JVs
• U.S. party minimum annual turnover of 2B /2.5 B
• U.S. party minimum assets 200M/300M
• Minimum registered capital 3.6M/9.6M
• Chinese majority interest required in many
  instances
• Maximum business term of 30 years

7
New FIE Rights for Distribution of Goods

• New Regulations, effective December 11, 2004
• All FIEs may engage in commercial distribution at
  the retail and wholesale levels.
• Minimum registered capital of RMB300,000/RMB
  500,000.
• No minimum asset or turnover requirements.

8
Opportunities

• Increase in number of customers of U.S. export
  goods.
• Exporters may establish an FIE to import U.S.
  goods.
• FIE may distribute imported goods in China, and
  sell imported goods directly to end-users.

9
Continuing Trade Restrictions

• Import Restrictions
• 4 categories of import goods remain in effect
• Prohibited
• Restricted (subject to quota or license)
• Subject to tariff
• Automatic Import License
• State Trading
• The Chinese government may continue to trade in
  certain goods (i.e. vegetable oils) and restrict
  trade in such goods by non-state enterprises
  through 2006.

10
Uncertainties

• Trade
• The right to foreign trade will be available upon
  registration. The registration process,
  processing period, etc. have not yet been
  clarified.
• Distribution
• Books, newspapers, periodicals, pharmaceuticals
• Compliance documents
• Treatment of existing FIEs (expansion of business
  scope)

11
Coudert Brothers llp

COUDERT BROTHERS LLP 333 South Hope Street, 23rd
Floor Los Angeles, CA 90071 TEL [phone]
2900 FAX [phone] E-MAIL
ASCHORR_at_COUDERT.COM