This presentation offers retailers a summary of the main legal and associated issues presented by expansion into China, and practical advice as to how best to deal with them.

1. Eastern Promise
A guide for retailers on expansion in China
Antony Gold, Head of Retail, Eversheds LLP
3 July 2012

2. Topics
acro Dynamic
P Protection
usiness Model
eal Estate
-Commerce
R issues

3. Eversheds retail team
• One of the largest full service law firms across Asia,
Europe, the Middle East and Africa
• Offer sector specific advice on the options for expansion
• Extensive experience in advising regulatory environment,
advertising and promotions, branding and competition
Ranked in the top tier of retail practices and recommended
for client service by Chambers and Partners every year from
2006-2012

4. Global reach

5. Questions & Answers

6. Eversheds contact details
For further information please contact me on:
Antony Gold
Head of Retail
+44 845 497 8204
+44 776 888 3358
antonygold@eversheds.com
Or email: retail@eversheds.com

7. Macro dynamics
Setting the scene
Nick Emmerson and Sharon Shi, Partners,
Eversheds LLP

8. China in one word
Urbanisation

9. China’s urban billion

10. Setting the scene
Proverbs

11. People/place
Shanghai

12. Shanghai too

13. Road out west

14. Ningxia

16. Party

17. Planned economy
• 12th Five Year Plan
– Investment Catalogue
• Economic targets
– GDP growth 7% annually on average
– 45m+ jobs created in urban areas
– Urban registered unemployment no higher
than 5%
– Prices to be kept generally stable

18. 12th five year plan
• Innovation
• Environment and clean energy
• Agriculture
• Livelihood
– Population to be no larger than 1.39 billion
– Pension schemes to cover all rural and 357 million urban
residents
– Construction and renovation of 36 million apartments for low-
income families
– Minimum wage standard to increase by no less than 13% on
average each year
• Social management
– Improved public service for both urban and rural residents
– Better social management system for greater social harmony
• Reform

19. Elephant in the room
Consumerism
“We will expand the import of consumer goods to a
reasonable degree and make use of the important
macro-economic balancing and structure-adjusting
role of imports and optimize the structure of trade
payments.”
Improving the comprehensive effect of imports
12th Five Year Plan

20. Powerhouse
Largest manufacturing power - fifth of global manufacturing

21. Costs are soaring
• Coastal provinces
– Labour
– Land prices
– Regulations
– Taxes
The end of cheap China (The Economist, 10 March)

22. What will replace cheap China?
5% annual rise in currency
and shipping costs
+
30% annual rise in wages
=
Cheaper to make in US than
China (incl. shipping) by
2015

23. Advantage China
“But coastal China has enduring strengths, despite soaring costs.”
• Booming domestic market
– newly rich
– “clamouring for stuff”
• Productivity is up
– paid more as producing more
• China is huge
– large and flexible work force
• Sophisticated and supple supply chain

24. Inland revenue?
• Chongqing
• New consumer
• Basic manufacturing shift
• Labour not much cheaper
• Extra/unexpected costs
• Move up the value chain?
• Innovate or slow down?

25. Proverbs
• 同床异梦 Same bed, different dreams
• 创业难 守业更难 To open a shop is difficult,
to keep it open is the art of survival
• 木秀於林 风必摧之 It is the beautiful bird that
invariably gets caged
• 不知则问 其惑一时 不知不问 惑其一生 He who
asks a question is a fool for five minutes; he who
does not ask a question remains a fool forever

26. Questions & Answers

27. Eversheds contact details
For further information please contact me on:
Nick Emmerson
Partner
+44 845 497 0522
+44 771 780 8430
nicholasemmerson@eversheds.com
Sharon Shi
Partner
+44 845 497 0734
+44 782 446 0390
sharonshi@eversheds.com

28. Eastern Promise
A Guide for Retailers on Expansion in
China
Brand Protection
Brian Clayton, Trademark Agent, Eversheds LLP

29. Brand protection in China
• The Landscape for Brand Protection
• What’s available?
• How does it work?
• What if………..

30. The landscape for brand protection
• Is it very different to other jurisdictions?
– basic processes are essentially the same, its
how they are applied which differs
• What is “China”?
– Hong Kong, Macau, Taiwan all separate
• Do I really need to take special steps?
– yes!
– need to take a look well in advance of desire
to trade – take advantage of non-use period
– changes are afoot – or are they?

31. What‘s available?
• Registered Trade Marks
• Registered Designs
– 2D designs protection?
• Unregistered Rights

32. How does it work?
• Registration process
– slow (around 12-18 months to examine)
– quite rigid and inflexible
– rigorous examination with very strict criteria
for both absolute and relative grounds
– 10 year term

33. What if…………………(1)
• My mark is refused on absolute grounds
– can appeal but may need to consider replacing
or amending the mark; absolute grounds
objections very difficult to overcome

34. What if……………………(2)
• My mark is refused on relative grounds
- cancellation – non-use for 3+ years
- invalidation – mark should never have
been registered – “bad faith”
- purchase – can be expensive
- all routes likely to be lengthy

35. Questions & Answers

36. Eversheds contact details
For further information please contact me on:
Brian Clayton
Trademark Agent
+44 845 497 8178
+44 782 788 3609
brianclayton@eversheds.com

37. Eastern Promise
A guide for retailers on expansion in China

38. Eastern Promise
A Guide for Retailers on Expansion in
China
Which Form?
Sharon Shi, Partner, Eversheds LLP

39. Update on legislation
• Supplementary Provisions to the Measures for the Administration
of Foreign Investment in the Commercial Industry (V) (effective
from 10, April, 2012)
• Circular of the Ministry of Commerce regarding Administration of
the Project Approval for Foreign Investment in Online Sale and
Auto-selling Machines Sale (effective from 19 August, 2010)
• Measures for the Administration of Record Filing of Commercial
Franchises (effective as of 1 February, 2012)
• Measures for the Administration of Information Disclosure in
Connection with Commercial Franchise (effective as of 1 April,
2012)

40. Changes to Regulation on Foreign
Investment in Commercial Industry
• Service providers from HK or Macao that open more than 30
stores in aggregate within the territory of the mainland of China,
and sell foodstuff in different varieties and brands from multiple
suppliers, are entitled to run in the form of wholly foreign-owned
enterprise on a trial basis, and the aforementioned business
operation shall be limited only within the territory of Guangdong
Province.
• As to foreign investors, other than those from HK or Macao, that
open more than 30 stores in aggregate within the territory of the
mainland of China and sell foodstuff in different brands from
different suppliers, they are only permitted to carry out the
aforesaid business in the form of joint venture with their
proportion of capital contribution on and below 49%.

41. Regulations on Foreign Investment on
E-commerce
• A foreign-invested commercial enterprise with retail in its
business scope may carry out online sale without any further
approval;
• A foreign-invested commercial enterprise without retail in its
business scope but intending to carry out online sale, shall
submit the application to competent commerce authority at the
provincial level for approval;
• A foreign-invested enterprise which provides network services for
other dealing parties by taking advantage of its own network
platform, needs value-added telecommunications business licence
(“ISP Licence”); while an foreign-invested enterprise which
directly engages in retail by using its own network platform, shall
carry out an ICP (“Internet Content Provider”) filing.

42. Forthcoming Regulations on
E-commerce
In response to recent online protests and scandals involving
prominent E-commerce companies such as Alibaba, the Chinese
government was, as of late 2011, drafting new regulations on E-
commerce that will reportedly clarify the rights and
responsibilities of the different parties involved. In addition,
drafts of a comprehensive PRC telecommunications law have
been debated for many years.

43. Updated Provisions on Commercial
Franchising
Record Filing Requirements
2007 Rule 2012 Rule
Competent If a franchisor carries out its franchising To emphasize that, a franchisor is also
Authority in activities within one province, it should entitled to file with the MOC at the
Charge of conduct record filing with the provincial central level, if the competent record
Commercial counterpart of the MOC; if a franchisor filing authority fails to record its
Franchising carries out its franchising activities commercial franchise activities.
Record Filing beyond one province, it should conduct
record filing with the MOC at the central
level.
Revocation of The record filing authority may revoke 1. The record filing authority may
Record Filing the record filing if a franchisor is revoke the record filing if a
evidenced to have hidden related franchisor hides related information
information or provided untrue or provides untrue information, and
information. thus causes a material impact to the
agreement.
2. The record filing may also be
revoked on the application of the
franchisor.

44. Updated Provisions on Commercial
Franchising
Record Filing Requirements
2007 Rule 2012 Rule
Required Just specifying that, a franchisor should A record filing will need to be changed
Changes to change its record filing with the if:
Original competent authority in case any
Record Filing information recorded has been changed. a. the information of the franchisor
registered with competent registry
changes;
b. the business resources information of
the franchisor changes; or
c. the details on the distribution of
franchisees’ stores in China change.
In addition, a franchisor is also
obligated to inform the record filing
authority of any conclusion,
cancellation, termination and renewal of
franchise agreements in the previous
year by 31 March of each year.

45. Updated Provisions on Commercial
Franchising
Disclosure Requirements
2007 Rule 2012 Rule
Information Only the parent company and the Natural person shareholders of
which Needs parent company’s or the franchisor’s franchisors are covered in the scope of
to be Disclosed controlled companies fell within the “affiliated parties” of franchisors.
definition of “affiliated parties”.
The bankruptcy history of the franchisor Only two years of the bankruptcy
or its affiliates for last five years should history of the franchisor or its affiliates
be disclosed. are required.
The business resources of the franchisor Only the business resources of the
or its affiliates, such as the IP rights, franchisor or its affiliates related to the
operation modes, should be disclosed. franchising activities are required. And
the business status of existing
franchisees should be disclosed.
Only the material litigation or arbitration All the litigation or arbitration in
in connection with the franchise during connection with the franchise during the
the last five years should be disclosed. last five years should be disclosed.

46. Updated Provisions on Commercial
Franchising
Disclosure Requirements
2007 Rule 2012 Rule
Statutory The franchisor hides information, or The franchisor hides information which
Conditions on discloses untrue information. may adversely impact the performance
Termination of of the franchise agreement and cause
the Franchise the purpose of such agreement to be
Contract unachievable, or discloses untrue
information.
Confidential Just specifying a franchisor may enter The statutory confidential obligation of
Obligation of into confidential agreement with a franchisees has been enhanced under
Franchisees franchisee 2012 rule

47. Forms for Foreign Investor engaging
in retail in China
1. In the Form of Foreign Invested Commercial
Enterprises (EJV, CJV and WFOE) Engaging in Retail
– With retail in business scope; or
– With online sale in business scope (carrying out online
sale only)
2. Carrying out Commercial Franchising
– Through its own subsidiary in China (having retail and
commercial franchising in business scope is required);
or
– Through retailers or its distributors as agents in China

48. Challenges
• Restricted products
• Licensing process
• E-commerce
• Unlevel playing field
• Third party services
• Culture difference

49. Questions & Answers

50. Eversheds contact details
For further information please contact me on:
Sharon Shi
Partner
+44 845 497 0734
+44 782 446 0390
sharonshi@eversheds.com

51. China50
Fifty Real Estate Markets
that Matter
Jeremy Kelly
Global Research
Jones Lang LaSalle
2 July 2012

52. China 50
Fifty real estate markets that matter
China30, 2007
China40, 2009
China50: Interactive Tool
China50, 2012 joneslanglasalle.com/China50cities
World Winning Cities Research
•Tracking the momentum • Spotting the City Winners
•Profiling the diversity • Identifying the real estate potential
52

53. Introducing the China50
The cities that will be making the headlines
HEILONGJIANG
Changchun Nantong
Changsha Ningbo Harbin
Changzhou Qingdao
Chengdu Quanzhou Jilin
Changchun
Chongqing Shantou Urumqi
JILIN
Dalian Shaoxing Shenyang
Dongguan Shenyang
XINJIANG
Foshan Shijiazhuang
INNER MONGOLIA HEBEI LIAONING
Tangshan
Fuzhou Suzhou Hohhot
Tianjin Dalian
Guiyang Taiyuan
Haikou Shijiazhuang Yantai
Tangshan Taiyuan
Hangzhou Weifang
Tianjin NINGXIA HEBEI Jinan Qingdao
SHANXI
Harbin Urumqi QINGHAI Lanzhou SHANDONG Changzhou
Hefei Weifang GANSU
Luoyang Xuzhou Wuxi
Xi’an Zhengzhou
Hohhot Wenzhou ANHUI
JIANGSU Nantong
HENAN Suzhou
Jiaxing SHAANXI Nanjing
Wuhan TIBET Shanghai
Jilin Xiangyang Hefei
Wuxi HUBEI Jiaxing
Wuhan Hangzhou
CHONGQING
Jinan Xi'an Chengdu Ningbo
Shaoxing
Jinhua Xiamen SICHUAN Chongqing ZHEJIANG Jinhua
Kunming Nanchang Wenzhou
Xiangyang Changsha
Lanzhou Xuzhou
GUIZHOU
HUNAN JIANGXI
FUJIAN
Fuzhou
Luoyang Yantai Guiyang Taipei
Quanzhou
Nanchang Zhengzhou Kunming
Nanjing Zhongshan YUNNAN
GUANGXI GUANGDONG XiamenTAIWAN
Shantou
Dongguan
Nanning Zhuhai Foshan
Nanning
Shenzhen
Hong Kong
Macau
Haikou
Zhuhai
HAINAN Zhongshan
Tier 1 cities (not part of China50)
Indicates levels of economic and property activity
53

54. China50 – Our Key Messages
A real estate market of global scale
An Economic Powerhouse
• 12% of ALL global economic growth over next decade
A New City Hierarchy Taking Shape
• Nine Transitional ‘Tier 1.5’ cities fast-tracking to maturity
Balance of Growth Tilting
• From coast to inland
• From Tier 1 cities to China50
Retail and Logistics
• Offering significant opportunities
“The China50 cities are being transformed by the scale of building, infrastructure
investment and their progress of economic development”
54

55. Why are China50 important?

56. Why are China50 important?
A continental-sized market
Economy of US$2.9 trillion
5th largest economy
370 million consumers
World’s 10 fastest growing cities
12% of all global growth
6% of world’s output
Over 100 million sq m of prime commercial space
56

57. China’s Expanding Economy
China50 accounts for increasing proportion of expanding national output
China 2011: US$ 11 trillion (GDP PPP) China 2020: US$ 21 trillion (GDP PPP)
China50
US$6.7 trillion
China50 32%
Rest of China
US$2.9 trillion
US$7.4 trillion
26%
66%
Rest of China
Tier 1 cities US$12.3 trillion
US$0.8 trillion 59%
7%
Tier 1 cities
US$1.7 trillion
8%
Source: EIU, IMF, IHS Global Insight
57

58. World’s Fastest Growing Large Cities
Top 10 cities all in China50
GDP % p.a. 2010 - 2012
Cities with populations over 3 million
Source: Miscellaneous
58

59. Retail Stock Evolution, 2005-2020
Four-fifths of China’s modern retail stock outside Tier 1 cities by 2020
2005
61%
39% 2008
13.4 million sq m 45% 2011
55%
2014 E
27 million sq m
2020 E
41 million sq m
68 million sq m
China50 Tier 1
137 million sq m
Source: Jones Lang LaSalle Real Estate Intelligence Service
59

60. China50
An Emerging Cities Hierarchy

61. China50: A Market of Significant Diversity
A nation of cities emerges
61

62. China50: Evolution Curve, 2012
A city hierarchy is taking shape
Tier 1
Tier 1.5 –
Shenzhen
Transitional
Tier 1.5 - 2
Tier 2 –
Growth
Tier 3
Tier 3 –
Emerging
Tier 3 –
Early Adopter
Source: Jones Lang LaSalle
62

63. China50 Hierarchy
The tiers of real estate opportunity
Tier 1.5 Transitional:
e.g. Chengdu, Chongqing, Tianjin, Shenyang HEILONGJIANG
•Large, open diverse economies Harbin
•Strong presence of MNC’s and domestic firms
= Potential across all sectors Changchun Jilin
Urumqi
JILIN
Tier 2 Growth: XINJIANG Shenyang
e.g. Xi’an, Qingdao, Changsha, Zhengzhou INNER MONGOLIA HEBEI LIAONING
•Strong demographics supporting robust retail markets and industrial Hohhot Tangshan
Tianjin Dalian
diversification
= Strengths in retail, logistics, back offices Taiyuan Shijiazhuang Yantai
Weifang
NINGXIA HEBEI Jinan Qingdao
SHANXI
Tier 3 Emerging: QINGHAI Lanzhou SHANDONG Changzhou
Luoyang Wuxi
e.g. Kunming, Harbin, Changchun, Nanning GANSU
Xi’an Zhengzhou Xuzhou
JIANGSU Nantong
•Moving towards the ‘lift-off’ phase SHAANXI
HENAN ANHUI
Nanjing Suzhou
•Aggressively being targeted by retailers TIBET operators
/ hotel Xiangyang Hefei
Shanghai
Jiaxing
= Retail, hotels Chengdu
CHONGQING
HUBEI
Wuhan Hangzhou Ningbo
Shaoxing
SICHUAN Chongqing ZHEJIANG Jinhua
Tier 3 Early Adopter: Changsha
Nanchang Wenzhou
e.g. Guiyang, Urumqi, Taiyuan GUIZHOU
HUNAN JIANGXI
FUJIAN
Guiyang Fuzhou
•Target for first-mover advantage Quanzhou
Taipei
= Retail, hotels Kunming
GUANGXI GUANGDONG Xiamen
TAIWAN
YUNNAN Shantou
Dongguan
Nanning Foshan
Shenzhen
Hong Kong
Tier 1 cities (not part of China50) Macau
Haikou
Zhuhai
Indicates levels of economic and property activity HAINAN Zhongshan
63

64. Tier 1.5 Transitional Cities
Nine cities fast-tracking to maturity
HEILONGJIANG
Chengdu: China 50’s premier real estate market
JILIN
Chongqing: The world’s fastest growing large city Shenyang
XINJIANG HEBEI LIAONING
Tianjin: A key logistics and manufacturing hub, INNER MONGOLIA Beijing
with aggressive financial service aspirations Tianjin Dalian
Shenyang: Retail centre of Northeast China and SHANXI
NINGXIA SHANDONG
hub for heavy manufacturing
QINGHAI
Wuhan: Central China hub, with strong GANSU
HENAN
JIANGSU
SHAANXI ANHUI
educational base TIBET
Nanjing
Shanghai
Suzhou
HUBEI Hangzhou
Nanjing: Historically important city, fast growing Chengdu CHONGQING
Wuhan
service sector, strong educational base Chongqing ZHEJIANG
SICHUAN
HUNAN JiANGXI
Hangzhou: Affluent city and major retail hub FUJIAN
GUIZHOU Taipei
Suzhou: Thriving export-driven economy YUNNAN
GUANGXI GUANGDONG
TAIWAN
Guangzhou Shenzhen
Dalian: BPO and software hub, FDI magnet, Hong Kong
tourist destination Macau
Source: Jones Lang LaSalle
HAINAN
15

65. China50 Retail
A Significant Opportunity

66. The Inexorable Rise of the Middle Classes
China50’s middle classes* to double in 3 years
Rest of
China50
233m
Millions
126m
Tier 1.5 Cities
66m
28m
Tier 1 Cities
* Population earning over $5,000
Source: EIU, 2012
66

67. Consumer class is expanding
Proportion of urban population with disposable income over $5,000 pa*
2020
2019
2011
2000
2018
2017
2016
2015
2014
2013
2012
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
0%
25%
50%+
Source: EIU, *constant 2005 currency terms
67

68. International Retailers
Moving deep into the China50
Luxury Retailers Big Box Retailers Fast Fashion Retailers
Leading the way Moving deeper into China50 Significant expansion now underway
Number of Stores
2009
Number of Stores
2012
Number of Stores Tier I benchmark
Luxury: based on presence of Armani, Gucci, LV, Dunhill, Burberry, Cartier, Hermes
Big Box: based on presence of Tesco, Carrefour, Walmart, IKEA
Fast-fashion: based on presence of Zara, H&M, Uniqlo and MNG
Source: Jones Lang LaSalle 68

69. China is the world’s biggest luxury market in 2012
Q1 2012
Harbin
Changchun
Urumuqi
Shenyan
g
Anshan
Beijing
Huhhot Dalian
Baotou Tianjin
Shijiazhuang Yantai
Taiyuan Jinan
Qingdao
Lanzhou
Zhengzhou
Xi’an
Nanjing Shanghai Zhenjiang
Hefei Zhangjiagang
Chengdu Wuhan Ningbo
Hangzhou Nantong
Chongqing
Nanchang Jiangyin
Changsha Wenzhou
Changzhou
Fuzhou
Guiyang Suzhou
Kunming Xiamen Wuxi
Guangzhou
Jinhua
Nanning Shenzhen Shangyu
Taizhou
Sanya Yiwu
Source: Jones Lang LaSalle
69

70. Mass Market Retailers expanding rapidly
Q2 2010
Harbin
Changchun
Shenyan
g
Anshan
Beijing
Dalian
Tianjin
Shijiazhuang
Jinan
Qingdao
Zhengzhou
Xi’an
Nanjing Shanghai Changshu
Changzhou
Chengdu Wuhan Ningbo
Hangzhou
Wuxi
Chongqing Shaoxing
Yiwu
Suzhou
Changsha Wenzhou
Fuzhou
Guiyang
Kunming
Guangzhou
Nanning Shenzhen
Source: Jones Lang LaSalle
70

71. Mass Market Retailers expanding rapidly
Q2 2011
Harbin
Changchun
Shenyan
g
Anshan
Beijing
Dalian
Tianjin Langfang
Shijiazhuang Yantai Baoding
Yinchuan Taiyuan Jinan
Dongying
Qingdao
Xuzhou
Zhengzhou
Xi’an
Nanjing Shanghai Changshu
Hefei Changzhou
Chengdu Wuhan Ningbo
Hangzhou
Wuxi
Chongqing Shaoxing
Jinhua Suzhou
Changsha Wenzhou
Fuzhou
Guiyang
Kunming Xiamen
Guangzhou
Dongguan
Nanning Shenzhen
Zhuhai
Source: Jones Lang LaSalle
71

72. Mass Market Retailers expanding rapidly
Q1 2012 Daqing
Harbin
Changchun
Urumuqi
Shenyan
g
Anshan
Beijing
Huhhot Tangshan Dalian
Baotou Tianjin Langfang
Ordos Shijiazhuang
Yantai Baoding
Yinchuan Taiyuan Jinan
Dongying
Jining Qingdao
Lanzhou Weifang Xuzhou
Zhengzhou Linyi
Xi’an Huai’an
Nanjing Shanghai Changshu
Mianyang Hefei Changzhou
Chengdu Wuhan Ningbo
Hangzhou
Wuxi
Chongqing Yueyang Shaoxing
Nanchang Jinhua Shangyu Suzhou
Luzhou Changsha Wenzhou
Quzhou
Ganzhou Fuzhou Nantong
Guiyang Hengyang Taizhou
Kunming Huizhou Xiamen Zhenjiang
Guilin Guangzhou
Dongguan Zhoushan
Nanning Zhuji
Shenzhen
Zhuhai
Foshan
Haikou
Zhongshan
Source: Jones Lang LaSalle
72

73. The Retail Hierarchy
Hangzhou, Chengdu and Shenyang top the ranks
Harbin
Hangzhou,
Shenyang
Chengdu, Shenyang
Tianjin Dalian
Qingdao
Tianjin, Nanjing, Wuhan, Chongqing Xi’an
Zhengzhou
Wuxi
Nanjing Suzhou
Shanghai
Hangzhou
Qingdao, Ningbo, Dalian, Suzhou, Wuxi Chengdu
Wuhan Ningbo
Chongqing
Changsha
Taipei
Kunming Xiamen
Changsha, Xi’an, Zhengzhou Shenzhen
Hong Kong
Harbin, Xiamen, Kunming Macau
Based in retailer concentration, retail stock, wealth, population
Source: Jones Lang laSalle
73

74. The Next Retail Winners?
Strong retail potential in many Tier 2 and 3 cities
Established markets
Growth markets
Future Attraction Index
Emerging markets
Xuzhou
Current Status Index
Current Status – based on retailer concentration, prime retail stock, wealth levels and urban population
Future Attraction- based on urban population and GDP growth, retailer momentum, developer activity, retail sales, wealth and disposable incomes, and numbers of affluent households.
Source: Jones Lang LaSalle
74

75. China50
Challenges Ahead and Conclusions

76. The Challenges Ahead
The obstacles on the road to maturity
Quality of real estate stock
Human resources
Poor real estate transparency
Lack of professional property management
City governance and policy shifts
Homogeneous economic structures
Environmental sustainability
Vulnerability to global volatility
76

77. Final Observations
A new chapter in China50 cities evolution
Traditional Forces New Forces
Emerging China Moving to Maturity
•Double-digit economic growth •‘High quality’ growth
•Massive infrastructure investment •Movement up the value chain
•City-building and modernisation •Continued tilt of activity inland
•Low cost labour Policy •Skilled human resources
•Export economy induced •Domestic economy
•Low tech manufacturing •High tech manufacturing and services
•Basic needs consumption •Mass consumption
•Scale and speed of real estate •Quality, sustainable, professionally
delivery managed, tenant-focused real estate
77

78. For more information on China50 contact:
Jeremy Kelly
Director, Global Research
+44 (0)20 3147 1199
jeremy.kelly@eu.jll.com
78

79. Questions & Answers

80. Eastern Promise
A Guide for Retailers on Expansion in China
The development of E-commerce in China
Virginie Deslandres, Partner, Eversheds LLP

81. Growing E-Commerce
• Current situation is favourable for companies seeking to develop
e-commerce:
– in 2011, about 203 million people participated to online
shopping, 28.5% more than in 2010
– the estimated e-commerce revenue in Q1 2012 was 1.76
trillion RMB: 26% higher than Q1 2011
– high-speed internet is widely accessible in China at very low
rates
– online purchases are most of the time products that
consumers cannot find in stores
– apparels and skin-care products are the fastest growing
categories
• But, China e-commerce is different from USA or Europe
– inception process is markedly distinct
– online shoppers have different preferences and expectations

82. Encouraged by the Chinese government
• Over the past ten years, internet transactions have been encouraged and
supported by the Chinese Government
• In September 2011, the Ministry of Commerce (MOFCOM) has published :
– a list of model e-commerce enterprise
– guidelines on the development of e-commerce in the 12th year plan
period
• creating more favourable environment
• developing the entrance of foreign players
• The aim is that by 2015:
– e-commerce will have been adopted by 80% of the sizable enterprises
– online retail will take over 5% of the total retail sales of consumer
goods
– China will become the largest online commerce market in the world
• China urban population shopping online
– 2006: less than 10% 2015: 44% expected

83. Regulations relevant to E-commerce
Major change in 2004
• 2004 Administrative Measures for Foreign Investment in
Commercial Sectors
– major changes as foreign investors are allowed to engage in
the distribution services by setting up Foreign-Invested
Commercial Enterprises (FICEs)
– FICE can be Wholly Foreign-Owned Enterprises (WFOEs) and
are able to engage in:
• commission agency business,
• retailing,
• wholesaling; and/or
• franchising (subject to separate regulations)
of imported or domestically manufactured products

84. Regulations relevant to E-commerce
August 2010 Circular
• In August 2010 MOFCOM releases a circular allowing e-commerce
activities for Foreign-Invested Enterprises (FIEs)
– before the circular, foreign access to online operations was
restricted (one physical outlet, requirement of a value-added
telecom licence, central MOFCOM approval)
– no need to get further approval:
• foreign-invested manufacturing enterprises can
automatically sell their self-manufactured products online
• FICEs already doing retail get automatic right to sell
products online (extension of their retail’s activities)
– New FICEs engage in e-commerce must get provincial
MOFCOM Approval

85. Regulations relevant to E-commerce
August 2010 Circular
• Other requirements of August 2010 Circular
– display of their business licence on the main page of the
website
– establish reasonable systems:
• for the return and replacement of the products
• to keep sales records
• to protect the privacy of consumers
• to protect trade secrets
– no distribution of products that are prohibited by laws
– obtain and special licences to distribute:
• books, newspapers & periodicals
• clothing and apparel
• pharmaceuticals
• petroleum products

86. Regulations relevant to E-commerce
Authorities in charge
• Internet sector is under the primary responsibility of:
– the State Internet Information Office under the State Council
– the Ministry of Industry and Information Technology (MIIT)
• For E-commerce the authority is also shared with:
– the Ministry of Commerce (MOFCOM)
– the State Administration for Industry and Commerce (SAIC)
– each of the governmental department for particular types of
products such as books & publications, clothing and apparel,
audio-visual products, pharmaceuticals or petroleum products

87. Regulations relevant to e-commerce
For-profit and non-profit ICPs
• The enforcement of August 2010 Circular is mainly subject
to the Ministry of Industry and Information Technology
(MIIT)’s views
– e-commerce is classified as a restricted sector for
foreign investment
– telecom services are subject to a licensing mechanism
and operators are catalogued into being either:
• for-profit Internet Content Providers (ICP) which
shall secure an ICP licence from MIIT
• non-profit ICPs which are only required to register
with MIIT for records

88. Regulations relevant to E-commerce
Licence vs. simple filling
• A company which set-up an online transaction platform:
– to allow third parties to sell their products on its
website; and
– receives proceeds from its operations on such platform
is categorised as a for-profit ICP and should obtain a ICP
licence from the MIIT
• Companies which would be qualified as a non-profit ICP
and would usually be required to make an ICP filling only
are:
– a company which set-up an online transaction platform
for its own use to sell its own products
– FICEs which sell their goods through online transactions
or even specialised in online sales

89. Regulations relevant to E-commerce
Geographical differences
• Problem of distinction between for-profit ICP and non-
profit ICP by local authorities
• Depending on geographical location, local communication
administrations may have different perspectives:
– some are following the principle that if the website
owner just provides sales information or sells its own
products through the website, it shall be deemed as a
non-profit website
– some other are simply considering that all e-commerce
websites must apply for ICP licences

90. Regulations relevant to E-commerce
WFOE or joint venture
• Holding more than 50% of a for-profit ICP’s equity is not allowed for
foreign investors
– establishing a joint venture is mandatory
– getting the ICP licence from MIIT implies special qualifications
• For non-profit ICPs:
– corresponding to a retailer selling its own products on its own website
– it can be established by foreigners under the form of either:
• a WFOE; or
• a joint venture
• The non-profit record-filing procedures are consisting about providing:
– basic information of the entity and the person responsible for the web
site
– the website’s URL and the description of the services to be proposed
– if the services are in restricted areas of business specific consents
have to be obtained from the concerned authorities

91. Regulations relevant to E-commerce
Forthcoming regulations
• The set of regulations relevant to FIEs engaged in internet and
e-commerce is still not complete
– no clear definition of a non-profit ICP and a for-profit ICP
– sales through other channels such as mobile phones or
television are not concerned by August 2010 Circular
– rules related to foreign investment in internet music services
and videos online are still remain unclear
• In response to recent online protests and scandals involving
e-commerce, the Chinese government is also currently drafting
further regulations to clarify the rights and responsibilities of the
parties involved
• In addition, drafts of a comprehensive PRC Telecommunications
Law has been debated for many years

92. Regulations relevant to consumers
interests
Protection of consumers interests
• China’s has started to put in place a system of regulations
for protecting consumers interests:
– the PRC Product Quality Law
governing quality control in respect of commodities and
services
– the PRC Protection of the Rights and Interests of
Consumer Law
governing the merchandising of commodities and
services
• SAIC strongly encourages customers to make complaints if
they feel their rights are infringed but still encounters
many difficulties to fight against fraud and fake products

93. Regulations relevant to consumers
interests
Online IP infringement
• For the first time, a circular issued in April 2011 recently clarifies the
responsibilities of online shopping platforms in relation to IP rights
infringements
• E-commerce operators are required to
– tighten the market access of business operators and commodities to
be traded
– establish a trademark and patent inquiry system
– adopt technical means to screen information on IP rights
infringement, and manufacturing and sale of knock-off and inferior
products
– improve information publication, identification, trading, payment
making, logistics, after sale service, dispute resolution, advance
compensation, process monitoring and other assurance mechanisms
– establish a daily 24-hour online inspection system
– investigate and eliminate hidden dangers in time
– handle violations of regulations and laws
– report the symptoms, trends and dangers of serious problem in timely
manner

94. Getting started
Chinese e-commerce platforms
• China e-commerce platforms can be classified in
three models:
– marketplace model
– online retail model
– traditional retail model

95. Getting started
Marketplace model
• Marketplace model connects buyers and sellers, whether it is B2B or C2C
• A marketplace platform facilitate business between the two parties but
has no product on its own to offer
• It must have
– a searchable database of information for buyers and sellers
– a secured means to facilitate payment
• Major China players are: Taobao.com, Paipai.com and Alibaba.com
• Restrictive access for foreign investors because it must:
– be a joint venture
– apply for an ICP Licence

96. Getting started
Online store in a marketplace
• For foreign brands looking to enter the Chinese market, set up
their online store on a network such as Taobao can prove to be:
– a lower and cost efficient investment as the network handle
everything:
• website maintenance
• delivery
• payment
• after sales services
– easier, as there is no need to have any real knowledge of:
• the online market
• the logistic
• the customer services; or even
• e-commerce itself
– much quicker than setting up its on online retail model

97. Getting started
Online and traditional retail models
• Online and traditional retail websites are:
– individual websites specifically for a particular company
– providing both products and channels to sell directly to
end customers
• Online retail model is where the company has no formal
real-world storefront
• Traditional retail model is where the company has physical
retails outlets

98. Getting started
MOFCOM approval
• Establishment of online or traditional retail companies by
foreigners are now to be approved by MOFCOM at provincial
level:
– WFOE or joint venture
– approval easier than before
– increase competition between regional administrations to
seeking to capture foreign investments
– still relatively complicated for online retail model
– easier to obtain for traditional retail model

99. Getting started
Pros & cons
• Online and traditional retail models:
– allow the retailer to manage its own affairs
– provide more independence to decide:
• products
• pricing
• marketing
• contacts with customers
– are suggested for products with high brand awareness or uniqueness
• But, are expensive mainly because they require:
– doing domain name promotions and advertisements
– having a website in Chinese language
– complying with the establishment procedures
– managing a IT team and a marketing team
– arranging payment systems
– organising products imports, delivery logistics
– providing products warranty and after sales services
– insure the personal data protection

100. Getting started
Players
• Major China online retailers are: Dangdang.com and
360buy.com
• In November 2011, Armani launched their own online
store:
– selling clothing and handbags directly to customers
throughout China
– allowing customers who would normally never been
able to access their products due to geographical
limitations
– Armani being already a well-known brand from
Shanghai to Urumqi

101. Issues to consider
Payment methods
• Most important aspects of an e-commerce success is to secure a suitable
system for payment of the goods online
• Local third party payments (such as Alipay or Tenpay, similar to PayPal)
have been established in 1999 and covers payment by credit cards
• Cash on delivery is the most popular system for Chinese online shoppers,
mainly because:
– buyers have a low level of trust towards online transactions
– Chinese customers have a relatively low usage of credit cards
• It is advisable to propose a dual payment system online:
– by credit cards (for younger generations or certain products such as
flight tickets, hotels, virtual products (software, music)
– cash on delivery which may incur additional operational costs but
allows more convenience and wider coverage

102. Issues to consider
Marketing
• Online advertising is playing a major role in China
– advertisements on search engines (such as Baidu)
– online news releases
– virus marketing
– posting advertisements on
• community websites or discussions boards
• social networks
that Chinese potential buyers tend to visit to get products
recommendations
• Chinese consumers also pay a great attention to other customers reviews,
blogs and forums:
– more prolific reviewers and readers of online reviews worldwide
– 40% of online shoppers are reading or posting comments (double
that of the USA)

103. Conclusion
• E-commerce is still an emerging market but growing at an
unprecedentedly rapid rate
• Any company wishing to sell in China, we would recommend
going online
• E-commerce laws and regulations are constantly developing and
offer more and more potentialities for foreigners
• When approaching the Chinese market online, it is vital to have a
strong strategy and know what to aim for
At Eversheds, we an give a tailor-made approach to suit
requirements of foreign investor

104. Questions & Answers

105. Eversheds contact details
For further information please contact me on:
Virginie Deslandres
Partner
+33 1 55 73 42 24
+33 0 61 74 57 391
virginiedeslandres@eversheds.com

106. Eastern Promise
A Guide for Retailers on Expansion in
China
HR issues
Sharon Shi, Partner, Eversheds LLP

107. Unified and improving Labour Law
• Labour Law and Labour Contract Law
• Written contract and more protection on
employee
• China's first unified social insurance law
• Prior to July 2011, social insurance was a
collection of programs operated by local
governments and mostly regulated by local
regulations

108. Practical issues
• Attracting the right talent, employer branding
• Two contracts = double protection?
• Collective contract: is it right for your business
• Trade secret: can it be protected

109. Social security payments: Obligations
of Employers
• Social insurance registration
• Pay employer’s contribution
• Withhold employee’s contribution and pay on his/
her behalf
• Inform the employee regarding his/her social
insurance contributions monthly

110. The "Five Funds"
• Basic pension insurance
• Basic medical insurance
• Unemployment insurance
• Work-related injury insurance
• Maternity insurance

111. Contribution Rates - applicable in 2011
Shanghai Beijing Guangzhou
Employee Employer Employee Employer Employee Employer
Pension 8% 22% 8% 20% 8% 12-20%
Medical 2% 12% 2%+RMB3 10% 2% 8%
Unemployment 1% 1.7% 0.2% 1% 1% 2%
Maternity 0% 0.8% 0% 0.8% 0% 0.85%
Work-related 0.5%-1.5
injury 0% 0.5% 0% 0.3%-1% 0%
%
10.2%+ 32.1%-32 23.35%-
Total 11% 37% 11%
RMB3 .8% 32.35%
Ceiling for 2011
monthly salary
base for 11,688 12,603 13,623 *
contribution (RMB)
Maximum monthly 4,046-4,13 3,181-
contribution (RMB) 1,286 4,325 1,289 1,499
4 4,407
*The ceiling for 2011 monthly salary base for contribution to pension fund is RMB10,890, which is three
times of the average salary of employees of Guangdong province in 2010

112. Monthly salary base
• The adjusted monthly salary base includes not
only basic salary but also bonuses, benefits, etc.
• However, it is capped at 300% of local average
monthly salary
• In 2011, the cap was RMB 11,688 in Shanghai,
RMB 12,603 in Beijing and RMB 13,623 in
Guangzhou

113. New legislation
• Social Insurance Law (effective from 1 July
2011)
• Interim Measures for the Participation in Social
Insurance by Expatriates Working in China
(effective from 15 October 2011) ("Interim
Measures")

114. Interim measures for Expatriates
Expatriates: non-Chinese nationals legally
employed in China
"Legally employed In China" means:
• Employment permit for foreigner; or
• Certificate of foreign expert; or
• Certificate of permanent foreign
correspondent; and
• Residence certificates for foreigners; or
• Permanent residence certificate for foreigners
and lawfully being employed in China

115. Expatriate enjoyment of benefits
If an expatriate leaves China before retirement
age, he or she may elect:
3.to be refunded part of the pension fund (i.e. “the
amount of individual account”); or
4.to put the individual account on hold and continue
contributing when he or she returns to China

116. Expatriate enjoyment of benefits
• If an expatriate leaves China after retirement age, he
or she may continue to collect a pension by
submitting proof of survivorship annually to social
insurance agencies, or appearing at the social
insurance agencies to prove his/her existence
• The balance of the individual account may be
inherited
• The same principle applies to other social insurance
payments that might be made to an expatriate after
he or she has left China

117. Treaty exceptions
• If there is a treaty between China and the
expatriate's home country on social insurance
payment obligations, treaty terms will prevail
• Currently, only Germany and South Korea have a
social insurance treaty with China
• Now that the Interim Measures are in place, more
treaties are expected

118. Consequences of Non-Compliance
• Penalty for non-registration:
– Fines for the employer (100% to 300% of
outstanding amount)
– Fines for the employer’s management (RMB 500 to
RMB 3,000)
• Penalty for late payment/insufficient
contribution:
– 0.05% accrued on a daily basis
– 100% to 300% of the outstanding amount

119. Consequences of Non-Compliance
• Notify banks to transfer unpaid contributions
(with administrative order)
• Request employer to provide guarantee and sign
agreement for delayed payment
• Seize the assets and auction the assets (with
court order)

120. Challenges
• How to comply with the different local practices?
• How expatriates enjoy the
unemployment/medical insurance?
• Can expatriate’s account be transferable across
pooling regions?
• Difficulties in practice

121. Questions & Answers

122. Eversheds contact details
For further information please contact me on:
Sharon Shi
Partner
+44 845 497 0734
+44 782 446 0390
sharonshi@eversheds.com

123. Eastern Promise
A guide for retailers on expansion in China
Close and lunch

124. Questions & Answers

125. Eversheds contact details
For further information please contact me on:
Antony Gold
Head of Retail
+44 845 497 8204
+44 776 888 3358
antonygold@eversheds.com
Or email: retail@eversheds.com

126. © EVERSHEDS LLP 2012. Eversheds LLP is a limited liability partnership.