French supermarket giant Carrefour will reorganize its Chinese operations and bring in local partners a year after Chinese officials said it broke rules by opening stores without their permission.
The French company opened its first supermarket in the Chinese mainland in Shanghai in 1996 and expanded rapidly to 27 branches by 2000.
But growth came to a halt last year after officials at the industry regulator, the State Economic and Trade Commission, said Carrefour had not sought its approval to open new branches.
The retailer is now restructuring its joint ventures to make sure its Chinese partners have ownership stakes of up to 35 percent and to reduce the number of ventures to 13 from 27, a Carrefour spokesman said.
Analysts say China is one of two must-have retail markets in Asia, along with Japan.
Foreign retailers are required to operate in China through joint ventures in which they can hold a maximum of 65 percent, according to one of Carrefour's Chinese partners.
Some of Carrefour's revamping has already been carried out and the rest will take place rapidly, though Chinese authorities have given no deadline for compliance with the regulations, the spokesman said.
Earlier, Carrefour partner Liaoning Chengda Co said the French chain was slashing its stakes in three supermarkets to abide by the government caps on foreign ownership.
Carrefour effectively wholly owned the three supermarkets in northeastern China, and it has now signed agreements with two domestic trading firms, Chengda and Harbin Dongli Equipment Co, to set up two joint ventures to control them, said Luo Qiku, Chengda's board secretary. Carrefour will transfer 35 percent of its stakes and retain 65 percent.
"To continue operating, Carrefour will have to abide by Chinese regulations," Luo said. "And, basically, Carrefour will have to make similar arrangements for all its stores in the Chinese mainland."
Sales from chain stores in China leapt to 200 billion yuan (US$24.2 billion) last year from 3 billion yuan (US$361 million) in 1994, according to DBS Vickers Securities.
The country is a potentially enormous market for retailers such as Carrefour, Wal-Mart Inc and Germany's Metro AG.
Beijing tightened its grip on the sector in late 1995, banning local governments from approving more chain store ventures to curb excessive competition. In 1998, China came down hard on foreign retailers, closing about 36 stores.
"They did break the rules and I think they got the punishment," Alex Wang, a legal consultant with Jones, Day, Reavis & Pogue in Shanghai, said of Carrefour.
(China Daily June 26, 2002)