Académie Suisse du vin

Wine Business in China

LEGAL FRAMEWORK IN DOING WINEBUSINESS IN THE PEOPLE‘S REPUBLIC OF CHINA.

The author, Liu Fang, graduated at Renmin (Poeple‘s) Univerity of China School of Law, Beijing (LL. B. in Economic Law), and Howard University, School of Law, Juris doctor, Washington D. C. (research assistent, then New York bar, and one year practice in various international law firms in the USA; Attorney in Chinese law firms. Currently assiociating with Wenger Vieli Besler, a Swiss law firm in Zurich and Beijing.

The origine of Chinese wine industry may trace back to General‘s Ban Chao time, during the Eastern Han Dynasty (25-220), and went into its thriving time in Tang (618-907) and Northern Song (960-1127) Dynasty. After China opened its door foreign investment for, as well as it entered into WTO, more and more wine business people are looking into Chinese market fortune. This article will give a brief introduction to the current legal framework in the wine industry of the People‘s Republic of China.

Current Investment environment

In terms of the possibility of investing in China in the wine business, the « Catalogue for the Guidance of Industries for Foreign Investment » (hereinafter the « Investment Catalogue ») providence guidance. The investment Catalogue is a combining list of three lists :

1. List of encouraged industries and sectors for foreign investment;
2. list of restricted industries and sectors for foreign investment; and
3. list for prohibited industries and sectors for foreign investment. Industries and sectors that are not listed in the Investment Catalogue will be deemed as « permitted » industries according to China‘s « Regulations on Guiding the Direction of foreign Investment », promulgated on June 7, 1995, and latest amended by the Ministry of Foreign Trade and Cooperation (hereinafter «MOFTEC») on February 27, 2002.

Wine related business, such as manufacture, processing, and packaging, is currently not specifically listed in the newest Investment Catalogue (approved by the PRC State Concil on march 4, 2002), therefore, it may assumed as a « permitted » sector for foreign investment. For « permitted » industries, not like « restricted » and «prohibited » industries (the ratio of foreign investment in which is very much limited and clearly specified), the investment in the form of Wholly Foreign Owned Enterprises (WFOE), Equity Joint Venture (EJV) and Contractual Joint Venture (CV) could be freely chosen. («WFOE» «EJV» and «CJV» hereinafter will be jointly referred to as « FIE »).

Currently most of the big names in China‘s wine industry are Sino-foreign joint ventures or have foreign partners. For example, the most famous wine producer in China, Changyu Wine Group Co,. Ltd., established a strategic partnership with the biggest French wine producer in August 2000; China Great wall wine Co., Ltd, another most popular wine producer in China, has investment from Hongkong; in addition, Tianjing Dynasty Wine Group Co., Ltd., one of the biggest wine producer in China also, is a Sino-French joint venture.

WTO Impact

China‘s entry into WTO does not affect foreign investment in the wine business much in China as in some other sectors. China did not make any specific commitment in the wine related business, therefore, the investments in this industry shall still follow former PRC laws and rules.

Importation and Exportation

China used to exercise strict control over inportation and exportation. Even after several decades‘ opening door policy, still, only certain state-owned or government agent controlled entities enjoy free importing and exportation rights. All other entities, including FIEs, have to retain the service of such entities in order to import and export goods from or to overseas. And such importation and exportation have always to be approved by the government agency.

In the regime of import and export, the newest Chinese law, the « Regulation of the People‘s Republic of China on Import and Export of Goods», which was approved by the State Council of PRC on December 10, 2001, divides goods into three major categories:

1. goods prohibited for import and export.
2. goods restricted for import and export, the import and export of which have to be subject to quota limitation or license ;
3. goods are freely to be imported and exported. For goods that are permitted for free import and export, the government may also adopt an « automatic licensing » system in order to exercise certain control ove the import and export of such. Under such system, the importer has to apply for an « automatic import license » from the local MOFTEC.

Back to early 1990‘s, alcohol as well as certain wine related products always fell into the category of « goods subject to quota limitation », the quantity of importation of which had be always subject to the approval of the Planning Department of local government. Beginning from early 1996, China started to relinquish the quota limitation on certain types of alcohol, including certain wines. However, wine contained in a container with a capacity below two liters were still subject to quota limitation, which means bottle wines were always subject to import restriction. Since the lists of the above three categories of goods are subject to change each year, in the « Lists of Goods Subject to Automatic Import Licensing Administration » issud by the MOFTEC on December 31, 2001, wine, including the wines contained in a contrainer with a capacity belov 2 liters, have been listed as « goods are free for importation ». As a result, FIEs, as well as domestic compagnies, are now free to import wine with approved « automatic import license ».

Although now FIEs are free to import and export wines, attention shall be paid to such FIEs‘ business scope. As stated above, only certain stateowned or government agent controlled entities enjoy free importing and exportation rights. Business solely engaging in import and export, under current Chinese law, is deemed « trading », the investment in which is « restricted » for foreign investor. And China has not make any opening such in this regard. Therefore, in a word, in order to engage in the business of or certain transactions in importing wine into China, a FIE has to be any other type of business except for « trading », and then, carries on the import business as an auxiliary.

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