China will open its auction market to foreign investors from the end of the year, in line with the country's commitments to the World Trade Organization.

"Foreign investors are allowed to establish solely-invested auction firms from December 11," says a draft rule on the administration of the domestic auction industry drafted by the Ministry of Commerce.

The ministry published the draft rule on its website on Wednesday and asked for public suggestions.

"The constitution of the new rule is to further promote and regulate the industry's healthy development and drive the opening of the sector," the ministry said.

Foreign investors with capital strengths, advanced technologies, management experience, and extensive international operating networks are encouraged to set up auction companies in China, the draft rule says.

It requires that auction firms must have a minimum registered capital of 1 million yuan (US$120,000), while foreign invested companies need to observe the country's related requirements on foreign company's registered capital and investment values.

Operation terms for foreign-invested auction companies will not exceed 30 years, while those establishing businesses in central and western regions of China are not allowed to exceed 40 years, the draft said.

The Ministry of Commerce will respond to foreign investors' applications in three months and it could adopt a hearing system before approval.

"The new rule is a complement to China's Auction Law which was put into effect from January 1, 1997," said Wang Fenghai, deputy secretary-general of China Association of Auctioneers.

He says the ministry asked for representation on the draft several times from the industry and it would take time to release a final version.

"The opening up of the sector will have an impact on the domestic auction industry, since foreign players are stronger and more experienced," Wang said.

But the impact would not be great, at least in the short term, he said.

"Because of the special characteristics of the industry, domestic firms will enjoy advantages due to their local positions and early accession," Wang said.

He said most of the areas in the business did not need a great deal of capital investment or advanced technologies.

Therefore, foreign players' strength in these aspects would not apply much pressure.

Wang predicted that only a few foreign investors would choose to set up solely-owned auction companies in China in the short term.

Big foreign auctioneers who are interested in the Chinese market would probably seek co-operation with their domestic counterparts, combining their strengths in capital, technology and management with local firms' rich resources and good understanding of the domestic market, he said.

Foreign players are likely to first enter the fields such as auctions of second-hand automobiles, real estate and arts and crafts, he said.

Chinese auction firms are weak in these areas, while such markets are well developed in foreign countries.

"Though the challenges will not be great, domestic firms still need to improve strength, especially in building up staff quality, to compete with their foreign rivals."

Currently, China has over 4,000 auction firms. However, more than 95 per cent are small ones.

(China Daily September 24, 2004)