Come December, China's US$240-billion retail arena will open wide to foreigners to fulfill its commitment to the World Trade Organization (WTO). The area will be a game of jungle, suggest executives and analysts.

From hypermarket Wal-Mart Stores Inc to convenience store 7-Eleven Inc and do-it-yourself chain Home Depot, top names are shelling out billions of dollars to set up shops in Asia's largest retail arena after Japan, lured by a ballooning middle class and pushed by stagnant home markets.

Joint venture requirements are to be abolished by year's end, as will minimum turnover and asset criteria, in accordance with China's WTO commitment.

Geographic limits also go, giving foreigners free rein to set up shops anywhere, not just in major cities.

Despite the green light, industry insiders warn costly plans could go awry given confusing regulations, chaotic logistics, obstructionist local officials, perplexing tastes and formidable domestic rivals.

"The central government says one thing and local governments another,'' said Loic Ducatillon, China supply chain manager for French hypermart Auchan.

Since the first modern supermarket surfaced in 1991, Wal-Mart and Carrefour have gobbled up market share, with stores stocked wall-to-wall with everything from bicycles to electronics.

Progress has been slow. After a decade, Carrefour ranks fifth, with sales of 13.4 billion yuan (US$1.6 billion), Xinhua News Agency reported.

Carrefour is one of five foreign-owned stores in the top 30.

More are coming. Auchan runs nine outlets sprinkled along the east coast. It plans to open another three by year's end.

Britain's top supermarket, Tesco Plc, plans to pay US$250 million for half of a firm that runs 25 stores nationwide.

Metro AG, the world's No 5 retailer, plans to spend close to US$700 million to open 40 stores in China over five years.

China is ideal because urban population densities are up to four times higher than in the West, said Andy Xie, Morgan Stanley's major economist.

"Hypermarts are sometimes viable covering just one neighborhood. This removes the biggest disadvantage of the hypermart model -- convenience against other channels of distribution,'' he said.

Many already rely on the country as a fount of low-cost goods. Wal-Mart bought US$15 billion worth of goods in China last year, and, last March, held its annual board meeting for the first time in a country it has said rivals the United States in potential.

"I would anticipate an increasing market share to be captured by global retailers. That is the inevitable trend,'' said ABN Amro's Fan Cheuk Wan.

But she complained there are still certain regulatory barriers in China to protect some infant segments.

For instance, if a single foreign investor has more than 30 stores, additional outlets have to be run as joint ventures, under Ministry of Commerce rules drafted in June.

In 2002, Carrefour was forced to overhaul its China operations, and bring in local partners, after government officials said it broke rules by opening stores without permission.

Dutch firm Ahold sold its 40 loss-making Chinese stores in 1999 and has yet to return in force. Metro says it has been in the red in China since 1996.

Even getting supplies can be a challenge. Ducatillon said 20-30 percent of ordered goods never arrive.

"They do not mind if they can only deliver part of the order,'' he said.

And the market flummoxes many.

IKEA's top seller in China is a fleecy wool rug in a style long abandoned in the West, except by the consciously retro.

"We scratch our heads about that one,'' said Ian Duffy, country manager for the unlisted Swedish furniture chain.

"It's not even that cheap.''

Home-grown players are not watching idly either. Many are banding together to protect their roughly four-fifths share of the market.

In Shanghai, Bailian was created through the mergers of several chains -- including Hualian Co Ltd and No 1 Department Store Co Ltd -- to create China's top retailer.

Others include Shanghai Friendship Co Ltd, which is the biggest shareholder in Hong Kong-listed Lianhua Supermarket Holdings Co Ltd, Beijing Wangfujing Group Co and Wumart Stores Inc.

Yet, the lure for foreign giants remains strong.

Retail sales topped 2 trillion yuan (US$242 billion) last year, versus about US$1.2 trillion in Japan. But it's a long-term bet, at best.

"In 10-15 years, China will become one of the biggest markets IKEA has in the world,'' Duffy said. That echoed a view expressed by many of his peers.

(China Business Weekly September 16, 2004)