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A win-win partnership between retailers and suppliers can help create a sound business environment and boost consumption. But it should not come at the expense of consumers' interests by preventing competition and innovation.

The Ministry of Commerce announced on Monday that the Management Rules on Fair Transaction Between Retailers and Suppliers will go into effect on November 15. The regulation, the first of its kind in China, aims to curtail market domination by some retailers as well as suppliers.

Given the problems caused by the bad practices of some market bullies, particularly those from the distribution side, it is proper for the regulators to step in.

China's retail industry has enjoyed an annual growth rate of 10 percent in recent years. A number of giant retailers have emerged rapidly with growing influence over their suppliers. Some of them have even exploited suppliers by levying various fees like entrance fees, decoration fees and promotional festival fees.

The retailers that hold up channel resources and gain advantageous positions have indeed put great pressure on suppliers who must vie hard among themselves in a buyer's market.

The ministry's effort to supervise retailers and crack down upon their activities such as imposing fees and delaying payment for products is urgently needed to ensure a level playing field for both retailers and suppliers.

When implementing the new rules to standardize market activities, regulators must also be careful enough not to restrict competition and innovation.

If retailers ask for illegal fees from suppliers, law enforcement should be enhanced. Yet, if the fees are only a result of a cost-sharing arrangement, regulators must distinguish a new business model from intentional exploitation.

As long as businesses comply with laws, they should be allowed to make the most use of their positions to expand their market shares.

In the coexistence of retailers and suppliers, the rising power of retailers might indicate a commercial trend that attaches more value to distribution than production. Of course, that does not deny the value of brand names that give suppliers a reputation of producing dependable and reliable goods.

Mushrooming supermarkets have attracted more and more Chinese consumers to judge product quality and bargain at lower prices from numerous suppliers. Meanwhile, suppliers can use these channel resources to substantially increase sales.

Clearly, the interests of retailers and suppliers converge at their joint efforts to better serve the consumers.

By encouraging co-operation between the two sides, the new regulation can help foster a better business environment. But that does not change the fact that fair competition among and between retailers and suppliers is essential to consumers' welfare.

(China Daily November 8, 2006)