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China

On June 1 2004, the Administrative Measures for Foreign Investment in the Commercial Field (known as the Commercial Measures), promulgated by the Ministry of Commerce on April 16 2004, will take effect. The Commercial Measures will replace the Measures Concerning Pilot Projects for Commercial Enterprises with Foreign Investment, effective since June 25 1999. Consistent with China's World Trade Organization commitments, the Commercial Measures have abolished the entrance criteria (such as minimum annual turnover for the past three years and minimum asset value for the past year) for foreign investors wishing to engage in commission agents, wholesale, retail and franchise businesses (that is, so-called distribution businesses). Also, foreign invested retailers no longer need to restrict the total annual amount of imported merchandise to more than 30% of the amount of its merchandise sales each year.

Thus, wholesale and retail foreign invested enterprises (FIEs) engaging in distribution businesses can have a minimum registered capital as low as Rmb500,000 ($60,000) and Rmb300,000 respectively. Also, foreign investors may from December 11 2004 establish wholly foreign owned enterprises to engage in distribution services.

It is unclear whether the capitalization and entrance requirements of the Commercial Measures will supersede the capitalization and entrance requirements under the Closer Economic Partnership Agreement (CEPA), which ironically are more stringent than the Commercial Measures.

Katherine U and Olivia Tong

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