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Residents of Wangjing, a large, modern residential area in northeastern Beijing, will soon have greater shopping options.
Their selection is currently limited to Jingkelong supermarket, Zhongfu Department Store, Zhengshi Home Furnishing Market and a recently opened B&Q hardware store. The first three are domestic retailers.
But that is about to change.
"I found out from newspapers and the Internet that some giant foreign retailing enterprises, such as Wal-Mart, Carrefour, Ikea ... are selecting sites here," Wang Jianchen, a middle-aged Wangjing resident, said.
While Wal-Mart and Carrefour would not provide details, sources at the Beijing Commerce Bureau confirmed the two retailers are planning to locate in the community.
It could be the beginning of a nationwide phenomenon, especially as restrictions on investment, shareholding structure, store location and number of outlets no longer apply to overseas retailers.
Experts believe overseas retail giants are on the path of expansion now that they are allowed to operate wholly owned stores.
The restriction that prevented them from operating wholly owned stores was lifted on December 11 in accordance with China's commitments to the World Trade Organization.
Easing of the restrictions is not the sole reason for overseas retailers' expansion plans, Todd Wang, corporate communications manager of Carrefour China, said.
"We are expanding in China because the market is maturing and there is huge potential," he said.
Ministry of Commerce sources said retail sales in the world's seventh-largest economy will likely be up 13 percent last year, to hit 5.2 trillion yuan (US$628 billion), and will likely climb more than 10 percent this year.
Foreign retailers expand
Per capita income in China's urban areas, home to about one-third of the population, rose 40 percent between 1999 and 2003, and topped US$1,000 a month, for the first time, in 2003.
Chinese consumers were the most confident shoppers in a survey of 38 industrialized economies released on November 24 by AC Nielsen, a leading market research and consulting company.
With consumption conditions ripe, overseas retailers have a gamut of expansion opportunities.
One option is establishing wholly owned enterprises.
France-based Decathlon, Europe's leading producer and retailer of sporting goods, recently became the first wholly foreign-funded retail enterprise in China when domestic partner Shanghai Zhonglu agreed to sell off its stake.
When Decathlon Zhonglu was launched in 2003, Shanghai Zhonglu took a 35-per-cent stake -- then the minimum for a domestic investor in a retail joint venture -- for 7 million yuan (US$843,000).
Decathlon operates two sporting goods supermarkets in East China's Shanghai Municipality. The firm is expected to open its third store in the city early this year.
French retailer Carrefour, the most successful overseas retailer in China by sales, reportedly signed an agreement with the Wenzhou Foreign Trade and Economic Committee in October to launch a wholly owned hypermarket in the prosperous city of East China's Zhejiang Province.
British hardware store B&Q is conducting a study to determine the feasibility of setting up a wholly owned store in Southwest China's Chongqing Municipality this year, reveal sources close to the world's third-largest and Europe's No 1 home-improvement chain operator.
In addition to striking out on their own, overseas retailers intend to scale up their business networks through mergers and acquisitions (M&As).
B&Q, which has 20 stores in China, has spent US$13.2 million buying five PriceSmart stores, out of 30, located in Heilongjiang, Shandong, and Sichuan provinces and Tianjin Municipality.
The outlets will be transformed into B&Q hypermarkets and will reopen for business this year.
"B&Q is focusing on the markets in North, western and Northeast China, and the stores we acquired are at the right locations for the company's further expansion in the country," company spokesman Hu Lifeng told China Business Weekly.
Meanwhile, Taiwan's top retailer, President, has taken a stake in PriceSmart's N-mart, a supermarket business, for 600 million yuan (US$72.29 million) and is eyeing the western region, Lily Lin, a manager at President, said.
Yuan Jianjun, a researcher at Huaxia Securities, told China Business Weekly that while launching wholly owned entities will help overseas retailers implement their strategies more independently and flexibly, their preferred mode of expansion will likely be M&As, "which are more economical and efficient".
Instead of greenfield investments -- such as the establishment of a new store or entity from scratch -- M&As offer a shortcut to overseas investors eager to secure a developed research network, as well as production, distribution and sourcing, Yuan said.
It is not just metropolises and cities in affluent provinces that overseas chains are eyeing -- they are also focusing on second-tier and smaller cities, said Wang Yao, deputy secretary-general of the China General Chamber of Commerce.
John Xu, director of external affairs for Wal-Mart China, said the lifting of the barriers to overseas retailers -- who were previously restricted to provincial capitals, municipalities and special economic zones -- will provide an opportunity for Wal-Mart, and others, to invest in under-served markets.
"Wal-Mart is actively evaluating the opportunities in China's provincial cities. We expect to open 10 to 15 stores in 2005, based on our current approvals, and move into the first provincial cities in 2005."
Wal-Mart, the world's largest retailer, currently owns 42 stores in 20 key cities that stretch from Northeast China's Harbin to Southwest China's Kunming.
To date, Wal-Mart has invested 1.6 billion yuan (US$192 million) in China.
Last month, Wal-Mark clinched a deal with the Shaoxing Investment Promotion Bureau to spend 300 million yuan (US$36.14 million) to establish a 450,000-square-metre hypermarket in the city, which is located in East China's Zhejiang Province.
Three months earlier, Wal-Mart inked contracts with Yuxi, in Yunnan Province, in Southwest China, and Taiyuan, capital of Central China's Shanxi Province, to open supermarkets this year.
Reliable sources say Wal-Mart is negotiating, separately, with 10 cities to open stores. Wal-Mart officials have declined to comment.
Last month, Carrefour said it plans to boost the number of its supermarkets and hypermarkets in China to 59 this year, from the current 53, mostly in smaller cities. It also intends to add about 100 Dia convenience stores.
Germany-based Metro, which has 22 supermarkets across China, announced last year that it plans to launch another 10 supermarkets in China this year, in smaller cities, and that it intends to spend 300 million euros (US$400 million) in the Chinese mainland within the next five years.
Sources close to Carrefour and Metro said the retailers are exploring the markets in smaller cities, such as Quanzhou, in Fujian Province; Yixing, in Zhejiang Province; and Weifang, in Shandong Province.
Yu Shuhua, vice-director of the Zhongshang Commercial Economy Research Centre, says foreign retailers' moves to expand into second-tier cities were based in part on the limitations in first-tier cities, where the markets are becoming saturated after a decade of frenzied growth.
"Also, operational, land and labour costs are lower in second-tier cities," Yu said.
Yan Ligang, spokesman for the Beijing Commerce Bureau, said that given the characteristics of the Chinese market -- a large population base, vast territory, different income levels and various cultural backgrounds -- joint ventures might still be the most practical and efficient model for overseas retailers' long-term development in smaller cities.
"Local partners can help select good locations, help adapt to local consumption habits and ensure smooth public relations," Yan said.
"China is a collection of markets, not just a single market. So, I don't think foreigners will just go it alone, especially when they want to penetrate the second- and even third-tier cities."
Meanwhile, Yan put into perspective the expansion plans of overseas retailers and their shares of the market.
"Foreigners are not likely to overwhelm China's retailing market, and local companies will not be wiped out as competition increases," Yan said.
"Overseas companies' share of the market may grow to 10 percent in three years, from 7 percent now. Foreign and local companies have different competitive strengths and can carve out their own niches," he says.
Figures from the Ministry of Commerce indicate the four largest Chinese retailers -- Wumart, Hualian, Lianhua and Suguo -- had more than 20 times the number of stores compared with the combined total, in China, of Wal-Mart and Carrefour.
(Business Weekly January 13, 2005)
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