Circular on Several Issues Concerning the Approval and Administration of Foreign Investment in Sales via the Internet and Automatic Vending Machines

Issuing Body: Ministry of Commerce
Issuing Date: August 19, 2010
Effective Date: August 19, 2010

Responding quickly to an April mandate from the State Council to streamline the regulation of foreign investment in China, the Ministry of Commerce (MOFCOM) has released rules making it easier for foreign-invested enterprises (FIEs) to sell products on the Internet or in automatic vending machines. The State Council's directive came via the Several Opinions on Further Utilizing Foreign Capital (see China Law Update, May 2010); MOFCOM issued the Circular on Several Issues Concerning the Approval and Administration of Foreign Investment in Sales via the Internet and Automatic Vending Machines (Internet and Vending Machine Sales Circular) on August 19, 2010. The MOFCOM circular simplifies approval procedures and improves the administration of FIEs that sell products via the Internet and vending machines.

Before issuance of the Internet and Vending Machine Sales Circular, foreign-invested enterprises wanting to sell products on the Internet or in vending machines were subject to the review and approval of the highest approving authority (that is, MOFCOM); now much of that responsibility has been delegated to provincial-level agencies under MOFCOM.

In addition, other agencies, such as the Ministry of Industry and Information Technology (MIIT) and its branches, may also have jurisdiction over Internet sales. The extent of MIIT's oversight depends on how a company uses its website, such as whether it provides Internet sale services to other companies.

Key points of the Internet and Vending Machine Sales Circular are summarized below.

Sales via the Internet

• The key principle underlying the Internet and Vending Machine Sales Circular is that sales via the Internet are regarded as an extension of an FIE's regular sales activities. Duly approved and registered foreign-invested manufacturing enterprises and foreign-invested commercial enterprises are allowed under the circular to directly conduct Internet sales activities without any need to obtain additional approvals.
• Applications for the establishment of an FIE specializing in Internet sales are to be submitted for approval to the appropriate provincial-level agency under MOFCOM. Such agencies are required to conduct a strict examination and approval of applications in accordance with the Measures on Administration of Foreign Investments in Commercial Fields (2004) and other relevant laws and regulations.
• If an FIE sells products directly through its own network platform, it need only file for recordkeeping with its local MIIT branch; an FIE that provides computer network services to other parties through its Internet site must apply to MIIT for a Value-Added Telecommunications Services Permit.
• When conducting Internet sales and related services, an FIE should display its business license in a prominent position on its website home page or on the website where it conducts sales activities. If the FIE sells refined oil, crude oil, books, newspapers, or drugs—the sales of which are subject to prior approval in China—it should also release detailed information about, as well as a clear picture or the logo of an electronic link to, its approval letter.
• FIEs engaging in Internet sales are required to establish a comprehensive system for the return or replacement of goods, to keep sales records, and to strictly protect trade secrets and the consumers' personal privacy.
• FIEs that sell products on the Internet must also abide by China's other consumer laws, such as the Law on Protection of Consumers' Rights and Interests (enacted in 1993) and the Law on Product Quality (2000), as well as other relevant laws, regulations, and rules. FIEs must not trade online products and services prohibited by laws or regulations.
• If the product or service provided via the Internet by an FIE is subject to examination and approval of other government agencies before registration with the local administration of commerce and industry (AIC), the FIE should report to and obtain the approval of relevant authorities before applying for the AIC registration.

Sales via Vending Machines

• Applications for the establishment of FIEs that sell products via vending machines or for an expansion of business scope to sell products in vending machines should be submitted for approval to the competent provincial-level agency under MOFCOM. Such agencies should consult with domestic trade administrative departments at the same level and conduct strict examinations and approval in accordance with the Measures for the Administration on Foreign Investments in Commercial Fields (2004) and other relevant laws and regulations relating to supervision and administration in health, food, and drugs.
• FIEs conducting sales via vending machines are required to display the name, address, telephone number, and complaint procedures for the business operator in a prominent position on all machines.
• FIEs conducting sales via vending machines should also establish procedures for vending machine operation, product quality management, and dispute resolution.
• FIEs conducting sales via vending machines are required to establish a mechanism for data storage of sold products, and machines should be capable of automatically retaining sales records.
• FIEs conducting sales via vending machines should also abide by the Law on Protection of Consumers' Rights and Interests, the Law on Product Quality, and other relevant laws and regulations.

Conclusion

MOFCOM's ongoing delegation of approval power appears to demonstrate its determination to further encourage foreign investment and stimulate economic development in China. And the agency is expected to delegate more powers in the future. On the other hand, as local MOFCOM agencies are being granted more discretion with regard to the approval of foreign investment, this delegation of powers may lead to different decisions on identical investments in different regions.