Development of Retail Industry in China - ITSP | Warringtonbear.warrington.ufl.edu/oh/IRET/Slides/1.4Development of Retail... · Development of Retail Industry in China. ... Department

David F. Miller Center For Retailing Education and Research

International Retailing Education and Training (IRET )

Development of Retail

Industry in China

page 2Development Module David F. Miller Center for Retailing Education and Research

Brief History of Retailing in China after the

Establishment of People’s Republic of China

Two important periods

1949-1978

Before Reforms: Planned Economy

1979-Present

The Reforms: Socialist Market Economy with Chinese

Characteristics

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Before Reforms (1949-1978)

Set deadline of 1956 to transform private

businesses into “whole people enterprises”

In next 5 years, state expropriates all major

industries

Wholesalers and retailers were state-owned, and

just storage facilities.

Luxury department stores taken over by

government and renamed, e.g., Number One

Department Store

Closing of ties between China and the West


Before Reforms (1949-1978)

FENPEI: Allocation System

The State Planning Commission decided on general

production goals for the factories in China.

The factories would then be allocated raw materials and

told to produce necessary products.

After production, the goods would be shipped to the

Ministry of Commerce Central Distribution Centers in in

Tianjin, Shanghai, Guangzhou, and then distributed to 2nd

and 3rd tier DCs at local level.

Wholesalers and retailers were government-owned, and

weren’t really “market players”, just storage facilities


Before Reforms (1949-1978) (Cont.)

Distribution SystemComponents

Manufacturers/Importers

Wholesalers

– Three Levels

Retailers

Controlled by Ministry of Commerce

Operated by Special State-Owned Companies

Prices were determined by the government not market.

Philosophical belief that “production” is the goal, and

“distribution” doesn’t add much value


Figure 1 China’s Distribution System before Reforms

(Tseng, Kwan, and Cheung, 1995)

Manufacturers/

Importers

1st level

Wholesalers

2nd Level

Provincial

3rd Level

District

2nd Level Provincial

3rd Level

District

3rd Level

District

3rd Level

District

Retailer

Retailer

Retailer Retailer

Retailer

Retailer

Retailer


Before Reform (1949-1978)

Under merchandise shortage, how much each kind

of product a consumer could purchase each month

was determined by the government.

Food

Coupons

Cloth

Coupons

Vegetable

Coupon

Soap

Coupon

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Before Reforms (1949-1978) (Cont.)

Ownership of the Distribution System

State-Owned

Monopolize Distribution Channels

Collective

Less Important

Private

Negligible


The Reforms (1979-present)

Decentralization of the Distribution Authority

Going through state-owned wholesale channels became

non-mandatory.

Management Reforms in Retail Outlets

State-owned wholesalers and retailers were held

accountable for their own profits.

Lift of Restrictions on Retailing

Prices could be negotiated.

Foreign retailers could operate in China.

Retail Ownership Become Diversified

State-Ownership Decreased

Private and Foreign Ownership Increased

Consumers Have Greater Freedom

Product shortages ended and food coupons were

abandoned in the early 1990’s.


Development of Retail Industry

Starting Period (1980’s) Dominated by old department stores, traditional grocery stores, and specialized

stores.

Introduction Period (early 1990’s) There were fewer than 10 chain stores.

Different formats emerge

Growth Period (middle and late 1990’s) Different Formats grew: Hypermarkets, Supermarkets, Convenience Stores, and

Specialty Stores

Entries of foreign retailers

Mature (the 21st century) Large scale chain stores across the countries.

Market competition became intensive.


Development of Retail Industry (Cont.)

The Overall Trend of the Development

From Single Stores to Chain Stores

Form Regional to National

From Eastern Coast to Western Inland

From First and Second Tier Cities to Lower Tier Cities

From Joint Venture to Wholly Owned for international

retailers

Market concentration increased and market competition

became more intensive.


Liberalization of Foreign Entries

Forbidden Period (1978-1991)

Rules for the Implementation of the Law of the People's

Republic of China on Sino-Foreign Joint Venture Enterprises

(1983)

Rules for the Implementation of the Law of the People's

Republic of China on Foreign-Funded Enterprises (1990)

Foreign investments were forbidden in retailing, wholesaling,

and other fields of business.


Liberalization of Foreign Entries

Step 1: 1992 Experimental Cities:

Beijing, Shanghai, Tianjin, Guangzhou,

Qingdao, and Dalian

5 Special Economic Zones Shenzhen, Zhouhai, Shentou, Xiamen, and Hainan

Each city could have 1-2 foreign retailers (Shanghai had 4) . Other cities were forbidden to accept foreign retail investment.

The retail stores had to be joint ventures. The Chinese partners had to have at least 51% ownership.

They could not be wholesalers.

No more than 30% of imported products.


Liberalization of Foreign Entries (Cont.)

Step 2: 1995 Foreign retailers could operate chain stores in Beijing.

Foreign retailers could partially enter wholesale sector. They had to be joint ventures and 51% Chinese ownership was

required.

Licenses were for no more than 30 years.

Step 3: 1999 Foreign retailers could enter the capitals of provinces and

autonomous regions.

The number and scope of the foreign retailers operating in China increased.

Step 4: 2004 2001, China joined WTO

Three years later, all restrictions on foreign retailers were removed.

page 15Location Module David F. Miller Center for Retailing Education and Research

“Let China sleep, for when she wakes, she will shake the

world"

-Napoleon Bonaparte

Development of Retail Industry in China - ITSP | Warringtonbear.warrington.ufl.edu/oh/IRET/Slides/1.4Development of Retail... · Development of Retail Industry in China. ... Department

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