The Ministry of Commerce issued the Administrative Measure on Foreign Investment in Commercial Areas on Friday, which incorporated China's promises to the World Trade Organization.

The measure will replace a pilot rule on foreign-funded commercial enterprises implemented in 1999.

The measure made it clear that China will lower its restrictive conditions for foreign-funded commercial enterprises according to its WTO commitments. The commercial industry's opening to foreign investment will turn into a normal procedure rather than a pilot trial, the measure says.

It also states that China will abolish joint-venture requirements and end restrictions on the location and number of foreign-funded stores after December 11 this year.

They are currently required to operate through joint ventures in which they can hold a maximum 65 per cent stake. And the stores can only open in major cities.

Since the commercial area opened to foreign investment, some US$3 billion has been poured into 270 foreign-funded commercial enterprises with 2,200 outlets.

But the measure did not involve articles to punish law-breaking foreign investors in the commercial sector, which the Ministry proposed in the draft.

The draft said law-abiding foreign retailers would be permitted to expand, while a one-year curb on expansion would be imposed on those who had violated the regulations. Chronic violators could be banned indefinitely from expanding their operations.

Many foreign giants opened stores illegally by skipping over the central government and making deals with local government. Many domestic commercial companies have piled pressure on the government to curb the illegal expansions by laying out such rules.

But the new measure just mentioned that foreign investors can open new stores only if it fits with the city's commercial layout.

The ministry has asked the major cities to submit their plans for commercial layout before the end of this year.

Huang Guoxiong, a professor from Renmin University, said most foreign investors have amended their behavior. For example, Carrefour was allowed to open new stores this year after it slashed its stake in three supermarkets in China to abide by government caps on foreign ownership.

(China Daily April 17, 2004)