By Rick Moss
Multinational chains like Carrefour, Wal-Mart, Metro and Tesco seem to have an insatiable hunger for expansion. Perhaps the only market on earth big enough to satisfy that collective appetite resides in China, home of the fastest growing retail sector on earth. According to Huang Hai, the country's minister of commerce, China's retail business is expanding at an average rate of 20 percent per year. And that growth rate has accelerated more recently. The total number of retailers in China grew 34 percent in 2005 and revenue was up 27 percent, resulting in chain store sales of 1.07 trillion yuan ($134 billion), according to The China Daily.
Of all the retail chain revenue being generated, about 13 percent can be attributed to foreign-owned companies, and that piece of the pie is bound to get bigger, to the consternation of domestic retailers. The Ministry of Commerce approved 187 foreign-funded retail enterprises in 2005 - six times that of the previous year - as well as 24 foreign acquisition projects, according to the Financial Express.
Although Chinese officials want to continue to encourage the influx of foreign capital and expertise, recent news that foreign investment in retail is double that of domestic companies is not sitting well with Chinese retailers. It seemed only a matter of time before a greater degree of control would be called for.
An initial sign of that came earlier this week when minister Huang announced his government's intentions to roll out new rules governing large chain store expansion. The regulations, to be put into effect later this year, are to be administered equally to both foreign and domestic retailers, but it was noted that it would be the overseas interests that would be most affected. That's mainly because it is the larger foreign-owned supermarket and warehouse stores that are located in large cities, where the government sees the need for more controls.
The minister's statement seemed carefully designed, however, to avoid panicking foreign investors. Huang was clear in saying that the new regulations would not deal with mergers and acquisitions by foreign concerns (the purview of the country's anti-monopoly authorities), and that store size limitations would not be imposed. However, he reflected the nervousness of Chinese retailers in commenting that, in areas such as marketing, logistics, workforce management and IT, foreign chains have a competitive advantage.
Moderator's Comment: Should these new regulatory developments indicate to U.S. and European retailers that they should be proceeding more cautiously with their investments in China?
China has in recent years been so genuinely welcoming of outside investment and western influence on its society that foreign businesses seem to be heedless of the fact that the country's more open economic policies follow thousands of years of strict isolationism. Yes, the world has changed, what with the revolution in global trade and communications, and it's possible that the Chinese society is now on an inevitable path toward free enterprise, but history would teach us otherwise.
Judging from the description in The China Daily (self-described as the nation's "only national English-language newspaper"), Mr. Huang spent far more time talking about all the things the government would NOT be cracking down on than giving details about the new restrictions. "The government only aims to guarantee a pleasant, competitive environment and boost healthy co-operation between all parties", paraphrased the paper.
From all that was not said, it might be intuited that big foreign retailers are on notice that they would be wise to curb their appetites. - Rick Moss - Moderator