Policy on Domestic Sale of FIE Products
12 October 2016
In 2000, the Chinese government amended the relevant laws and regulations related to investment by foreign companies, removing the restriction on the domestic sales ratio of the products produced by foreign-invested enterprises (FIEs – including foreign wholly-owned, equity joint-venture and contractual joint-venture enterprises). The Law of the People’s Republic of China on Foreign Capital Enterprises revised on 31 October 2000 has lifted the requirement for FIEs to export all or most of their products. Subsequently, the Implementation Rules of the Foreign Capital Enterprises Law have also removed the restriction on domestic and foreign sales ratio. Hence, foreign-invested production enterprises are free to sell their products locally in China, or they may appoint other commercial entities to do so. In other words, FIEs now have the same autonomy as other types of enterprises in China in selling their products locally or exporting to overseas markets.
For foreign-invested production enterprises established before 31 October 2000, the domestic sales ratios specified in the contracts, articles of association and feasibility study reports approved before will no longer apply under the new rule. Mainland authorities will not force FIEs to fulfil such contractual obligations and FIEs will not be punished for non-compliance.
Application Procedures for Domestic Sale of Own Products of FIEs
At present, foreign-invested production enterprises (including foreign wholly-owned, equity joint-venture and contractual joint-venture enterprises) approved by the Chinese authorities can automatically enjoy domestic sales right and no separate approval is required provided that the products sold are products they produce in China. In the past, foreign-invested production enterprises engaging in domestic sales had to appoint a domestic enterprise as agent. However, after the mainland had opened such commercial sectors as wholesale and retail to foreign participation, foreign investors may set up their own marketing or sales department to sell their own products directly to distributors, retailers or consumers.
Should an enterprise wish to set up a marketing or sales department and yet the business of the marketing or sales department is not covered in the business scope of the investment contract signed at the time the enterprise was established, it must apply for approval from the commerce department at the place where the planned marketing or sales department is to be located. For example, if the production enterprise is located in Dongguan and its marketing or sales department is also to be located in Dongguan, then the enterprise has to apply to the Dongguan commerce bureau for approval. If the planned marketing or sales department is to be located in Guangzhou, then the enterprise has to apply to the Guangdong provincial commerce department for approval through the local commerce office. Applications for establishing marketing or sales departments outside Guangdong province also have to be made to the provincial commerce department.
Foreign-invested production enterprises selling their products locally in China are subject to Chinese laws and regulations regarding industry and commerce administration, health, quality supervision, taxation, etc. The major administrative measures governing the domestic sale of the products of foreign-invested production enterprises are requirements for seeking prior approval and sale permission when manufacturing and selling certain products. If a foreign-invested production enterprise plans to produce and sell certain products that are subject to prior approval and sale permission, it should apply for approval at the authorities concerned before establishment and sale respectively. For instance, China implements a market access system to ensure food quality and safety. Enterprises producing food products have to obtain a health licence from the health authorities before they can apply for registration with the industry and commerce administration department. Enterprises without the licence are prohibited from food production. The food products produced by enterprises are subject to mandatory inspection. Those that pass will be affixed with the QS mark (market access mark), and those that fail cannot leave factory for sale on the market.