http://online.wsj.com/public/article/SB115308783430608102-idDKK0cKHy4YK37dq7U6n75k4P4_20060723.html
BEIJING
-- China is drafting new rules to regulate large-scale shopping outlets, which
could impede the expansion plans of foreign retailers such as Wal-Mart Stores
Inc. and Carrefour SA.
If the rules are finalized, they could raise costs and increase red tape for
big retailers by requiring them to file detailed blueprints for proposed new
outlets and hold public hearings on the impact on communities.
The rules are under review by China's cabinet, the State Council, and could
be released later this year, according to an official at the Ministry of
Commerce, which is drafting them. The proposed rules would apply to both foreign
and local retailers. But some industry executives say they would be especially
cumbersome for large foreign retailers, many of which have been planning major
expansions since the liberalization of China's retail industry in early 2005.
Leo Yeung, director of retail services for China at real-estate firm Cushman
& Wakefield, said the proposals would make foreign big-box retailers and
investors in large malls "consider more carefully their expansion plans" into
China's smaller cities and hinterlands.
Despite pilot projects, public hearings on zoning projects are a relatively
new concept in China. And in practice, neighborhood committees and citizens'
community groups have had little power fighting renewal projects, although they
are starting to be more active.
The draft regulations could play to the advantage of local companies like
Shanghai-based Lianhua Supermarket Co. and Beijing's WuMart Stores Inc. Many
Chinese retailers have lobbied the government to address a perceived bias among
local governments in favor of well-funded foreign retailers holding brand-name
cachet. "We are not going to restrict the development of foreign investors in
China," said Wang Yongping, secretary-general of the China Commercial Real
Estate Union and a senior adviser to the Ministry of Commerce. "Instead, we just
want a more balanced and scientific commercial layout. Foreign companies can no
longer get special advantages from the government."
Details of the rules could still change. In their current form, they would
consist of two parts, according to Mr. Wang and the Commerce Ministry official.
Cities would be required to file detailed blueprints of their commercial plans,
including plans for department stores, big supermarkets and other retail outlets
in residential neighborhoods.
Retailers applying to build outlets larger than 10,000 square meters would be
required to submit to a public hearing, much as they are required to do in some
North American and European countries. The hearings would include regulators,
industrial associations and academic experts as well as competitors and
representatives of local residents.
Pilot public hearings have already been held in some cities since 2003. None
has derailed any projects, and they aren't expected to in the future, said Mr.
Wang. However, he said, the hearings could result in higher project costs if,
for example, local governments require retailers to put in refinements, such as
pedestrian tunnels to improve traffic.
Foreign retailers are reluctant to comment on the proposed regulations before
details are formally made public. But privately some express concern. "The law
is quite cleverly worded because it doesn't explicitly apply to foreign
companies, but is based on size, which is where the foreign retailers specialize
in. So this is hurting them," said one foreign retail executive.
James Zimmerman, vice chairman of the American Chamber of Commerce in China,
said in email response to questions that if the proposed regulations "have the
effect of unreasonably and unfairly restricting foreign retailers from the
market," then China might be setting up a nontariff barrier in violation of
World Trade Organization rules, "and we therefore take exception."
Todd Wang, a Shanghai-based spokesman for Carrefour, said he is aware of the
draft rules, but says the company doesn't know the details of the contents.
Executives for Wal-Mart couldn't be reached for comment. An official at Shanghai
Brilliance (Group) Co., owner of major supermarket chains including Lianhua,
welcomed the proposed regulation. "Foreign retailers are always enjoying special
favor and treatment from local governments. But the government should protect
the national companies better if they want us to grow strong," said the
official.
China has gradually liberalized its retail regulations since its WTO entry in
2001. Last year, it ended rules requiring foreign retailers to form joint
ventures with local partners, sparking a surge in expansion by foreign
retailers. Wal-Mart announced plans to add about 18 stores to the 60 it
currently operates in China; Carrefour has plans to add 12 stores to its
existing 79. Best Buy Co., Germany's Metro Group AG, U.K.-based Tesco PLC and
Swedish retailers Ikea and Hennes & Mauritz AB also announced plans to open
or expand in China.
The proposed regulations are also meant to curb waste, Chinese officials
said. In recent years, some of the world's largest shopping malls have been
built in China. But many have been unable to convert crowd traffic into robust
sales, retail executives say.
If public hearings are effective, the proposed rules could also help preserve
local neighborhoods, many of which are being demolished in China's quest to
modernize swiftly, especially in preparation for major events such as the 2008
Beijing Olympics and the 2010 Shanghai World Expo. "In the past, the government
was very keen to land large-scale projects," said Michael Hart, head of Shanghai
research at real-estate consultant Jones Lang LaSalle. "It's refreshing to see
concerns about neighborhood preservation."
