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Policies on Domestic Sales of Products of FIEs

Domestic Sales of Self-produced Products by Manufacturing FIEs

(a)  Related Policies

At the beginning of its economic reform and opening-up, China imposed restrictions on the domestic sales ratios of foreign-invested enterprises (FIEs). The rule that all or most products produced by an FIE must be exported was revoked in the revised Law of the People’s Republic of China on Foreign-funded Enterprises on 31 October 2000. The rule on the proportion of the sales of FIE products between the domestic market and overseas market was also deleted correspondingly in the Decision of the State Council on Amending the Rules for the Implementation of the Law of the People’s Republic of China on Foreign-capital Enterprises as announced by the State Council on 12 April 2001, so FIEs can either sell their own products by themselves, or use commercial agents to sell on their behalf. Since then, manufacturing FIEs have autonomy over the domestic and overseas sales of their products like other types of enterprises in China.

(b)  Domestic Sales

Currently, all manufacturing FIEs (including wholly foreign-owned enterprises and equity and cooperative joint-ventures) established with the approval of the Chinese government will obtain domestic sales rights automatically without further approval, a departure from the previous model in which they must use domestic agents for the domestic sales of their products. Since China’s wholesale and retail sectors are open to foreign investors, foreign companies can set up their own sales or retail departments and sell their own products directly to distributors, retailers or consumers.

When a manufacturing FIE sells its own products in China, its sales practices must, like all domestic enterprises, comply with the requirements of related laws and regulations in industry and commerce, hygiene, quality supervision and taxation matters. For a product to be sold domestically, it has to be subject to administrative measures and restrictions mainly in the form of undergoing examination and approval and obtaining sales licences if it falls under a specific product category. If the product to be produced and sold by a manufacturing FIE belongs to a specific product category, the enterprise will have to obtain a manufacturing permit to carry out production and a sales licence before selling (For details, see related contents in this chapter). For instance, China is currently exercising a food quality safety market access system in which a food manufacturing enterprise must obtain a food manufacturing permit before engaging in food production and business operation activities. Products leaving a factory have to undergo inspection; food found to be qualified will be affixed with a “QS” mark (a market access label) while unqualified food cannot leave the factory for sale. According to the Decision of the State Council on Cancellation and Adjustment of Certain Administrative Examination and Approval Items (Guo Fa No. 27 [2014]), 31 pre-establishment approval items such as Public Area Hygiene Licence and Licence for Internet Access Services can now be changed to post-establishment approval items. In other words, an applicant can first apply for business registration and the related scope of operation registration and, upon obtaining a business licence, proceed to apply for approval certificates with related examination and approval authorities.

Policies and Application Procedures for Establishing a Distribution Enterprise

(a)  Related Policies

China had pledged it would completely liberalise its distribution sector within three years after its accession to the WTO. So far, for foreign-invested wholesale and retail enterprises, restrictions on geographical location, ownership structure and the number of shops have been lifted. Furthermore, shopfront requirements, as well as minimum assets and sales turnover requirements for market access, have been eliminated and foreign investors are allowed to establish wholly-owned commercial enterprises. Chinese citizens among Hong Kong permanent residents can engage in individually-owned businesses. All FIEs, including small and medium-sized ones, can now register wholesale or retail businesses anywhere in China, whether through joint-venture or wholly-owned arrangements. Foreign-invested wholesale and retail enterprises can trade all kinds of merchandise, except in the case of specific industries such as pharmaceuticals and food where business licences have to be obtained.

(b)  Establishment Procedures

To establish a distribution enterprise, a foreign investor should apply for “pre-approval of enterprise name” (reserving an intended business name) with the competent local registration authority if the business falls within the scope prescribed in the Provisional Measures for Filing Administration of Establishment and Changes of Foreign-invested Enterprises. The investor may either complete foreign-invested enterprise record-filing before applying for business registration, or within 30 days after carrying out business registration. Record-filing can be carried out by logging onto the Ministry of Commerce (MOFCOM)’s integrated management information system for foreign investment, where applicants can fill out all related information and upload all documents required. If the record-filing is approved, the applicant will be issued a notice of pre-approval of FIE name. With a copy of the notice, the applicant can collect a Receipt for Record Filing for the Establishment of FIEs from the local business filing and registration authority. Please refer to Chapter 1: Application Procedures for Establishing FIEs for detailed procedures and information to be submitted.

Chinese citizens among permanent residents of the Hong Kong Special Administrative Region and Macau Special Administrative Region do not have to go through foreign investment filing procedures if they want to apply for setting up an individually-owned business. An applicant can go directly for business registration and apply for the registration of an individually-owned business. The procedures are as follows (there will be slight differences from location to location; applicants are advised to enquire with the competent local registration department first):

1.    Fill out an Application for Pre-approval (or Change) of Enterprise Name form and prepare all relevant information. In particular, Hong Kong residents should submit: (1) a copy of their Hong Kong Permanent Identity Card; (2) a copy of their Home Return Permit for Hong Kong and Macau Compatriots or Hong Kong Special Administrative Region passport for Hong Kong residents; (3) A certificate of identity (certified identity document) issued by a Hong Kong lawyer (who is a China-appointed Attesting Officer) and confirmed by China Legal Service (Hong Kong) Company Limited dispatched by the Ministry of Justice by the affixing of a special seal. Macau residents should submit: (1) a copy of their Macau Permanent Resident Identity Card or Macau Resident Identity Card; (2) a copy of their Macau Special Administrative Region, People’s Republic of China passport or a certificate of identity issued by the Macau Special Administrative Region Identification Services Bureau.
2.    Submit the Application for Pre-approval of Company Name (Changes) form and wait for the name approval result.
3.    Collect a Notice on Pre-approval of Enterprise Name and also an Application for Business-opening Registration of Individually-owned Business; if the scope of the business is subject to pre-licensing, go through the related examination and approval procedures.
4.    Submit application materials. If the materials are complete and in compliance with legal forms, wait for the collection of the Notice on Approval for Registration;
5.    Upon collection of the Notice on Approval for Registration, collect a business licence from the Industry and Commerce Bureau on the date specified in the Notice.

Content provided by Picture: HKTDC Research
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