Upon China’s accession to the WTO, import rights were granted to all domestic enterprises over a period of three years. Within one year of China’s accession, before December 11, 2002, foreign investors will be able to establish joint ventures (with some geographic restrictions) to distribute goods on a wholesale level, either as a principal or as an agent. Within two years of accession, foreign investors will be able to own a majority interest in these distribution joint ventures with no geographic restrictions, and a year later they will be able to establish wholly owned subsidiaries to engage in wholesaling in China. Existing foreign investment enterprises will be given import rights, for example to import finished goods for resale, using the same timetable. They will also be able to distribute locally sourced goods.
In other words, wholly foreign-owned distribution centres could be established in any part of China by 2004. By then, foreign investors may consider relocating their FTZ distribution centres to a downtown location that is closer to their wholesalers, retailers and key accounts. Alternatively, they could be retained because of the better-developed ports and logistics facilities of the FTZs and the various customs and tax incentives offered by FTZs. In any case, most foreign investors would prefer to adopt an interim solution for an effective management of their distribution services during the market phase-in period in order to capture the biggest market share. Bearing this in mind, a wholly foreign-owned FTZ distribution centre could be a very attractive trading structure for foreign investors in China before 2004.
This article was written by Charles Leung, partner and Peggy Lue, senior manager of PricewaterhouseCoopers Ltd Guangzhou.