PCOG Working Group Meeting Go back »
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Time2006-06-30 | 08:30
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Venue:European Chamber Office, Beijing
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Address:S-123 Beijing Lufthansa Center, 50 Liangmaqiao Road
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Fee:Members: FREE |
Non Members: FREE
The focus of the meeting will be Retail and Wholesale. Having fully recovered, Terry Blaney, Director of Shell Downstream has re-confirmed his availability and will therefore kick-off the meeting with a brief presentation on retail and wholesale. Following his presentation, we will have a roundtable discussion on the topic. We invite everyone to attend.
The tentative agenda for this meeting is as follows:
1. Presentation by Terry Blaney, Director of Shell Downstream on Retail and Wholesale?
2. Roundtable Discussion
We would appreciate if you could indicate your attendance at this meeting before Wednesday 28th June 2006 on rhiankelly@euccc.com.cn. Regarding the Position Paper, we are in the process of drafting and hope to send an initial draft to you shortly for comments. We plan to have the paper approved by Friday 30th June 2006.
Kindly note, that the meeting is open for members only. For further information about the Working Group or how to become a member, please contact Business Manager Adam Dunnett at adunnett@euccc.com.cn.
Event review
PCOG Working Group MeetingFiday, 30th June 2006, 8:30 a.m.
European Chamber Office, Beijing & Shanghai
Author: Ceren Wende (cwende@euccc.com.cn)
Participants
Company | Name | Member |
BEIJING | ||
BASF | Joerg Wuttke | X |
EUCCC | Rhian Kelly | |
EUCCC | Adam Dunnett | |
EUCCC | Ceren Wende | |
EU Delegation | Olivier Micol | |
Shell China | Terry Blaney | X |
Shell Global Solutions | Henry Wang | X |
Solway S.H. Rep. Office | Irna Zhang | X |
Total China Invest | Jeff Attwood | X |
Total China | Bernard Lacaze | X |
SHANGHAI | ||
Arkema | Dominique Namer | X |
DSM | Quang Tran | X |
DSM | Stefan Sommer | X |
EU Chamber | Maurizio Andreano | |
Siemens | Haifeng Chen | X |
TUV Sud | Frederic Maury | X |
Agenda:
1. Presentation by Terry Blaney, Director of Shell Downstream on “Retail and Wholesale”
2. Roundtable Discussion
3. 2006 Position Paper
4. A.O.B
Discussion Points
1. Presentation by Terry Blaney on “Retailing/Wholesaling Petroleum Regulations in China”’
The first slide introduced the changes the petroleum industry has gone through from 1980 when the industry was fully controlled by the government to 2004 when retail was opened up to foreign players in December. Current Regulatory Framework for Retailing Petroleum Products. Current situation of the retail industry for petrochemical following WTO accession. Additionally, this slide included administrative controls and restrictions on foreign investment in the commercial sector, including limits on foreign interest, which shall not exceed 49% if certain products are sold in its outlets. Retail De-regulations following WTO accession. This slide included points on certain constraints that were relaxed and new ones that were introduced. Among the restrictions that were relaxed were annual turnover and minimum registered capital requirements, while more stringent security requirements was among the newly introduced controls. Retail Industry Development. This slide identified the two options available to foreign investors in the petrochemical industry who wish to establish a sufficient scale in their operations in China. The first is to establish a joint venture with one of the national companies while the other is to establish a JV with a no-governmental company. The implications of restrictive measures on the retail sector. Foreign companies have less direct control on market developments, may be penalized with higher costs and experience difficulties when succession takes place in the partner company. Wholesale De-regulation following WTO accession. The requirements for foreign companies to engage in wholesale were listed. Additionally, preconditions on scale and financial capability to obtain a wholesale license were mentioned. Such restrictions were deemed to pose barriers of entry and restructure the sector substantially. Franchise Regulation following WTO accession. Restrictions on prospective franchisors was mentioned. Those wishing to create a substantial presence in China must have access to stable supply, which in the face of partially deregulated prices causes great risks. Petroleum products pricing regulation. The price of processed oil is determined by the government within the range provided by the NDRC. Petroleum products pricing regulation. Due to government controls and favorable treatment to NOCs, foreign firms compete on an uneven playing field and cannot secure stable supplies and relationships. Bullet Environmental regulation in the oil sector. Proposed standards for environmental regulations are being modeled after the Netherlands. There is a need to develop broader consultation with the industry, to ensure balancing of risk with costs 12: Summary. Problems foreign firms face include; diluted ownership, margin squeeze and supply availability, wholesale restrictions, uneven playing field and higher costs as a result of government policies. Institutions representing foreign investment should work towards removing these artificial constraints and pre-conditions to foster a more competitive, efficient and easily accessible market.
2. Roundtable Discussion
Following the presentation and some positive feedback about it both from attendees in Shanghai and Beijing, some points were raised about the current situation in the petrochemical industry. It was mentioned that there is ambiguity in the legislation concerning chain stores that sell not only oil but other products too.
In the second draft of the wholesale regulation, the number of sites recommended has been reduced while the volume of logistics was increased. Between now and December 2006, it is expected that new regulations and changes will take place. The high level of consultation between the government and nationally owned oil companies is a cause of concern as the latter tends to exercise more influence than the other players. The regulations currently in place are drafted without prior consultation with foreign partners, which overseas companies hope to change in the near future.
3. 2006 Position Paper
The first recommendation for the Position Paper was on item 2 regarding consultation meetings. Currently multinational companies are consulted little, if at all in the drafting of legislation. The perception is that local players are trying to push barriers to entry higher to limit competition from foreign players. Foreign companies would like to see this change and therefore request that a stronger message be communicated through the position paper.
Similarly, attendees also mentioned that dealer-operated businesses are at the moment closed for multinationals. Foreign companies would like to open this opportunity and recommend that this item should be made stronger and special attention should be given to the franchise issue. Furthermore, the 30-site ceiling should be removed to make competition fairer. References to processed oil should be limited while government should be encouraged to quickly open up markets to international prices to lay down the foundations for the industry.
Issues such as chain store pricing are still in the gray zone while removing the 30-outlet ceiling is probably further than what China is willing to do. Multinationals also encourage the government to implement the retail and wholesale section of its WTO commitment.
The second discussion regarding the Position Paper was on toxic chemicals. China is obliged to have a catalogue of toxic chemicals currently in its possession to implement international standards and practices. Foreign companies presently operating in China who use toxic chemicals need to register these require a fee. This fee however does not apply to local companies and thereby clearly discriminates against multinational players. The sections regarding this in the Position Paper should be modified accordingly. Even if a complete elimination of the toxic chemical registration fee is not possible, the government should at least reconsider its structure. The registration fee should at least have a broader scope and cover areas that are left out by the current regulations. Furthermore, it should be clarified to whom this registration fee applies to; agents, customers, distributors or all? At present, the rules stipulate that fees are set according to the quantity of chemicals put on the market by each company. This however only pertains to chemicals that are imported and not locally produced. This creates discrepancies are favorable conditions to Chinese companies which are more likely to produce domestically. Furthermore amounts set according to quantity favor smaller corporations over bigger ones. While the content of all the sections discussed was agreed upon, members recommended that some changes be made in the wording.
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