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Drive to Strengthen Circulation Sector

China will meet intensified competition resulting from its World Trade Organization (WTO) membership by building a batch of internationally competitive circulation companies.

A development outline recently released by the Ministry of Commerce said that this work would have to be completed within the next five to eight years.

The industry will be fully opened up - as a condition of China's WTO membership - by the end of this year.

The outline for the circulation industry said: "It is a pressing task to build (a few) large-scale circulation firms that are internationally strong."

The industry encompasses sectors as diverse as retail, distribution, logistics, catering and community services.

Acquisitions, mergers, contracting, purchases and franchises are the means by which the central government is encouraging large firms to expand, the ministry said.

"Going global" and seeking partnerships with foreign counterparts are other ways the government envisages growth in this vital sector.

China should have between 15 to 20 major circulation firms within five to eight years if these efforts pay off. The firms will enjoy their own intellectual property rights and become basically competitive on the international market.

The ministry hopes the sector can annually reach a retail volume of 6 trillion yuan (US$726 billion) by 2007 and 8 trillion yuan (US$968 billion) by 2010.

Analysts say the plan will largely benefit large domestic players such as Beijing-based WuMart and Shanghai-based Bailian (Group) Co.

According to China's WTO commitments, foreign firms will be freed from the remaining restrictions imposed on them in this sector by the end of this year.

Overseas companies have been allowed to invest in the sector since 1992.

Leading international retailers and distributors are readying themselves to penetrate further into the Chinese market once it is totally liberalized.

This has made the ministry step up its efforts to develop a few major local players in the industry.

The ministry has also pledged to shatter the local protectionism and monopolies that haunt the industry's further development, saying it will provide an equal footing to enterprises with different forms of ownership.

"(We) will take concrete measures to solve the inequality that is imposed on different enterprises," the ministry said.

This move is widely seen as a response to complaints from domestic firms that their overseas-invested rivals have been afforded preferential treatment.

In a bid to attract more foreign funds to bolster economic development, some local governments gave excessive preferential treatment to overseas firms.

This situation was resolved to a certain extent after the ministry tightened market controls at the beginning of this year.

This policy will aid the integration of the nation's circulation market, also helping big names' expansion drive.

The government has also pledged to steadily push for the opening of circulation of major commodities such as refined oil.

The industry's 2003 retail volume was 4.58 trillion yuan (US$554 billion). The retail sector enjoyed an actual annual growth rate of more than 9 percent over the past two decades.

Technological innovation has also stepped up in the sector in recent years, with 11 percent of retail business being conducted by e-commerce in 2002.

The ministry hopes this figure can be raised to 15 percent in 2007 and 18 percent in 2010.

(China Daily June 3, 2004)

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