Domestic Sales by Foreign Enterprises

An Expert's View about Distribution Networks in China

Last updated: 22 Feb 2011

2-1 Policies Governing Domestic Sale by Foreign-Invested Production Enterprises

2-1-1 Policies Governing Foreign-Invested Enterprises Selling Own Products Locally
In the early days of reform, government authorities imposed restrictions on the ratio of domestic sales by foreign-invested enterprises (FIEs). After China's accession to the WTO, the relevant foreign investment laws and regulations have been revised. The Law of the People's Republic of China on Foreign Capital Enterprises revised on 31 October 2000 has lifted the requirement for FIEs to export all or most of their products. Subsequently, the Implementation Rules of the Foreign Capital Enterprises Law have also removed the same restriction. FIEs are free to sell their products locally in China, or they may appoint other commercial entities to do so. In other words, FIEs now have the same autonomy as other types of enterprises in China in selling their products locally or exporting to overseas markets. For existing foreign-invested production enterprises, the domestic sales ratios specified in the contracts, articles of association and feasibility study reports approved before will no longer apply under the new rule. Mainland authorities will not force FIEs to fulfil such contractual obligations and FIEs will not be punished for non-compliance.

In the past, FIEs had to appoint domestic enterprises to handle most of their wholesale activities. Today, foreign investment is allowed to enter the wholesale and retail sectors in the form of wholly-owned or majority-owned enterprises. In other words, foreign investors may set up sales operations to sell goods.

2-1-2 Policy Governing Domestic Sale of Bonded Materials and Parts Imported under Processing Trade Arrangement (with Imported or Supplied Materials) by Foreign-Invested Production Enterprises

Although the restrictions on the export of products by FIEs have been lifted, strict control remains in place regarding the domestic sale of goods produced under processing trade arrangement. According to the circular issued by the State Economic and Trade Commission and other government authorities on further enhancing the processing trade customs duty deposit system, a set of rules have been formulated to administer the domestic sale by processing trade set-ups. The rules stipulate that bonded materials imported by processing trade enterprises should be 100% exported out of China upon completion of processing. If any processing trade enterprise is unable to comply with the export requirement due to special reasons, and the bonded materials or finished products have to be sold in China or used to produce goods for domestic sale, approval has to be sought from the commerce department at provincial level. Such transfers have to abide by the rules governing the transfer of bonded import materials for processing trade to domestic sale.

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Posted: 21 February 2011, last updated 22 February 2011

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