"With China's entry into the World Trade Organization (WTO), Shanghai will see an increase of foreign capital in the retailing sector this year," said Cai Hongsheng, director of Shanghai Municipal Commercial Commission.

The retail sector is set to further open to foreign investors in accordance with WTO regulations. Limits such as the percentage of shares held by foreign investors, the number of store branches and store scale will all be phased out over the next three years.

Presently in Shanghai, 140 billion yuan (US$16.91 billion) of the 430 billion yuan (US$51.93 billion) in commercial capital comes from foreign companies - sales by foreign retailers account for about 8 percent of the total.

But the figure is certain to increase as more foreign retailers enter the local market, say most experts.

Planned expansion

British retailing giants Tesco and Sainsbury both have shown great interest in the local market.

"I am sure they would like to open branches in Shanghai," said Douglas Barrett, British consul (commercial).

Tesco and Sainsbury, which are the top two supermarket retailers in Britain, are currently investigating markets in Shanghai, Shenzhen and Guangzhou of Guangdong Province.

Though there is store on every corner in the city, the official said there appears to be a gap in the market between the hypermarket and the small corner shop, which could offer opportunities for medium-sized supermarkets.

Although the world's biggest retailer, Wal-Mart, first came to China in 1996 opening up in Shenzhen, it has yet to appear in Shanghai.

However, the Shanghai Morning Post has reported that the retailer is planning to open its first Shanghai branch this year.

Wal-Mart sources have refused to confirm their plans, but soon after taking up the position of acting mayor last December, Chen Liangyu received the CEO of Wal-Mart.

In addition, Wal-Mart said they have already sent papers to the Shanghai Government for approval of a new branch. The new branch is said to be planned for Xinzhuang in South Shanghai.

The world's second biggest constructive material retailer, B&Q, is also looking for possible branch locations to add to the three stores that it already has in the city. B&Q plans to launch another 15 branches in the next five to seven years.

Pluses & minuses

"Sure, the competition will be more cut-throat, especially for local retailers with less experience and capital," said Qi Xiaozhai, deputy director of Shanghai Commercial Information Center, "It is unavoidable that some retailers will fold."

But the foreign retailers also bring many opportunities to local producers, according to Qi.

The growing trend among foreign retailers is to do goods sourcing in China to lower the cost and cater to local consumers.

B&Q, which has three stores in Shanghai and six throughout China, now sources 90 percent in China.

"They will soon source 30 percent of all products sold world-wide here in China," Barrett said.

Wal-Mart has even moved its global sourcing headquarters from Hong Kong to Shenzhen.

Wal-Mart's yearly sourcing of US$190 billion will go to Shenzhen headquarters starting in February this year.

(China Daily Hong Kong Edition January 7, 2002)