National standards on the classification of retail business modalities, to be implemented on October 1, will inform foreign investors that opening up convenience stores, discount stores and small and medium-sized supermarkets are preferable choices in China, which is to open the industry up fully after December 11.

According to an official from the Ministry of Commerce, the national standards give clear definitions on 17 retail business modalities, such as convenience stores, large-scale supermarkets, members-only warehouses, shopping malls, television shopping, vending machines and mail order.

For example, large-scale supermarkets are defined as "with a business area of more than 6,000 square meters, serving a radius of two kilometers".

However, in some cities there have been three or four hypermarkets constructed within a radius of two kilometers.

"The specific classifications can help investors to identify their business modalities and avoid overlapping investment in retail business," the official said.

He said the standards will provide grounds for the ministry to map out rules governing cities' commercial layouts.

The ministry has asked cities to submit commercial layout plans for review. This move focuses on the opening of mega-stores, but it does not have the legal impact of rules.

The rule was proposed by nearly 100 deputies to the 10th National People's Congress in March this year, who submitted a proposal calling for a legal framework for the establishment of mega-stores in major cities.

Wang Wei, a senior research fellow at the Development Research Center of the State Council, said the rule will suggest that convenience stores, discount stores and small and medium-sized supermarkets will be better choices for opening new retail sector businesses.

"We expect that the rule will give the right signal to this sector and investors can find their right position by comparing it with the national standards," Wang said.

Wang said small and medium-sized retail businesses are badly needed in China while many investors are only focusing on hypermarkets or shopping malls.

For example, research indicates there is room for between 3,000 and 5,000 convenience stores in Beijing.

Huang Guoxiong, a professor from the Renmin University, said that the national standards were timely as China is set to further open up its retail business sector.

China will abolish joint-venture requirements and end restrictions on the location and number of foreign-funded stores after December 11 this year.

They are currently required to operate through joint ventures in which they can hold a maximum 65 percent stake. And the stores can only be opened in major cities.

"The government move is telling the foreign investors, most of which show interest in mega stores, that small ones are more favored," Huang said.

However, foreign investors have moved to introduce smaller stores in China.

The world's No 1 convenience store operator opened its first Seven-Eleven (7-11) convenience store in eastern downtown Beijing in April. Seven-Eleven said a total of 500 convenience stores would be opened in the next five years, and the annual sales volume of Beijing 7-11 Co Ltd is expected to reach 2.8 billion yuan (US$337 million) by then.

Carrefour is also moving smaller store operations to China by opening its Champion-branded supermarkets in China.

Covering nearly 3,000 square meters, the Champion supermarket belongs to the category of medium-sized supermarkets, according to the national standards, which is encouraged by the government.

China at present is worried about the so-called "mall mania" and the Ministry of Commerce is conducting an investigation into large-scale commercial facilities throughout the country, which has been ordered by Premier Wen Jiabao.

(China Daily August 16, 2004)