Ministry of Commerce

Guiding Opinions of the Ministry of Commerce on Promoting the Reform and Development of Small and Medium Circulation Enterprises

September 26, 2005

In order to implement the spirits of the Several Opinions of the State Council on Promoting the Development of Circulation Industry
(Guo Fa [2005] No.19) and the Several Opinions of the State Council on Encouraging, Supporting and Guiding the Development of the
Individual, Private and Non-Public Enterprises (Guo Fa [2005] No.3), provide guidance to small and medium circulation enterprises
(including small and medium enterprises engaged in the retail and wholesale of commodities, foreign trade, catering business, accommodation
industry and other service industries offered to citizens), quicken the pace of reform and development, and promote the sound development
of these small and medium circulation enterprises, several Opinions are hereby presented as follows:

I.

Guiding Ideology and Development Objective

As leading players of the circulation Industry, small and medium circulation enterprises are account for approximately 99% of all
the circulation enterprises throughout the country, obtain a sales volume accounting for more than 90% of the total volume of retail
sales of social consumables and provide a wealth of employment opportunities. In recent years since the pace of adjustment in the
distribution of the state-owned economy has been quickened, small and medium circulation enterprises are playing increasingly important
roles in boosting the steady increase in national economy, attract investment from the private sector, make life easier for the people,
lighten unemployment pressure, promote the flourishing of market and maintain social stability. However, small and medium circulation
enterprises, which are short of necessary policy supports and guidance, have their sound development restrained by many difficulties
and problems encountered by such enterprises on their road to development for long.

Guiding ideology: “we shall take the important thought of Three Represents as guide to action, fully implement the spirits of the
Sixteenth National Congress of CPC, the Third Plenary Session of the Sixteenth Central Committee of the CPC and the national work
conference on circulation held by the State Council, establish scientific development views, give full scope to the important role
of small and medium circulation enterprises in creating more jobs, solving issues concerning agriculture, countryside and farmers,
promote the sustained and coordinated development of national economy, propel the reform of small and medium circulation enterprises,
push ahead the application of information technology and modern marketing techniques by these enterprises, vigorously develop modern
circulation modes, keep improving managerial and administrative expertise as well as the level of modernization, give more supports,
take effective measures to solve major problems restraining the development of small and medium circulation enterprises, better the
operating environment, and advance the sound development of small and medium circulation enterprises.”

Development Objectives: By the year 2010, medium circulation enterprises shall have established the modern enterprise system basically,
while small circulation enterprises shall have perfected their operation and management system, further standardized their business
activities, notably raised their managerial and administrative expertise, markedly increased their abilities to resist risks, and
significantly improved circulation infrastructure and application of modern information technology. By the year 2010, small and medium
circulation enterprises shall have further increased in numbers, proceeded to have an average annual growth rate of sales revenue
reaching 9% which is a little bit more than that of the national economy, fostered a batch of famous brands of small and medium enterprises,
regulated the business activates according to pertinent industry standards, further enhanced the capabilities of creating jobs for
people and risen to the top among various industries in terms of total newly-added employment.

II.

We shall deepen the reform in order to increase the vitality of small and medium circulation enterprises

Competent commercial departments at various levels shall combine with particular situations in the local areas, deepen the reform
of state-owned small and medium circulation enterprises, further increase the vitality of these enterprises, press ahead with the
reform of ownership structure of enterprises, establish a modern system of ownership with clearly-defined property rights, specified
rights and responsibilities, strict protection and smooth circulation, provide guidance to enterprises in reforming their property
rights system and operational mechanism by means of conglomeration, acquisition, merger, lease, contract operation and sales, quicken
the restructuring of state-owned small and medium circulation enterprises, vigorously promote the reform of the joint stock system
among medium circulation enterprises, encourage and support the participation of non-public capital into the reform of state-owned
small and medium circulation enterprises, such as the private capital and foreign investment, so as to diversify the capital subjects,
develop with great efforts the mixed ownership with the state-owned capital, collective capital and non-public capital.

We shall facilitate medium circulation enterprises to deepen the reform of their enterprises’ systems, prefect their corporate governance,
transform the management mechanism, improve enterprise operations and systems concerning personnel and income distribution and mobilize
the initiative of enterprises’ employees in accordance with requirements of the modern enterprise system, provide guidance to small
and medium circulation enterprises in focusing on basic management, further strengthen the business management, legally establish
internal control systems of enterprises related to the administration of management of commodities, financial management, contract
management, human resource management and safety management, as well as perfect the enterprise internal control codes and standards.

We shall encourage dominating enterprises to merge with, restructure and administer under the custody the difficulty-ridden ones,
declare bankruptcy of the insolvent enterprises with losses for long time and little hope of recovery, reinforce the guidance and
regulation in the reform of small and medium circulation enterprises, standardize the operation during the restructuring of enterprises,
prevent the loss of state assets, prevent the evasion and suspension of debts owned to banks, balance the reform, development and
stability in a correct way, maintain legitimate rights and interests of workers and staff, as well as maintain the social stability.

Competent commercial departments at all localities shall actively coordinate pertinent local departments for support small and medium
circulation enterprises to promulgate tax and financial support policies related to pioneering work encouragement and supports given
to small and medium circulation enterprises for business innovation, technical innovation and market exploration, reduce costs for
the restructuring and reform of small and medium circulation enterprises, encourage the financing by means of income from operation
of state-owned enterprises’ assets, liquidity of commercial land, reduction of state-owned capital in circulation enterprises, transfer
and financial allocation, in places where conditions permit, set up special funds for the reform of state-owned small and medium
circulation enterprises which shall be used to pay the restructuring fee which is payable by and fails to be paid by restructured
enterprises lacking strength to do so, and to pay the social insurance and economic compensation, the payment of which the cash after
liquidity of assets of enterprises in bankruptcy is not sufficient to cover, actively coordinate with the local department for real
estate administration for its support, solve problems on the ownership of commercial real estate which has been used for long by
state-owned small and medium circulation enterprises, and earnestly implement the preferential policies of the State concerning the
reemployment of laid-off workers by enterprises and concerning the establishment of small and medium enterprises by laid-off workers
from state-owned enterprises.

III.

We shall vigorously develop the modern circulation modes, and enhance the level of modernization of small and medium circulation enterprises

We shall actively press ahead with the development of organizational forms and service methods such as the chain operation, franchise
operation, logistics distribution, agency system, multimode transport and e-commerce. Small and medium circulation enterprises may
focus on the development of franchise chain and voluntary chains among small and medium enterprises according to own characters,
as well as further enhance the level of organization of small and medium enterprises. Small and medium circulation enterprises shall
be encouraged to reform the traditional circulation industry modality by means of modern circulation modes, develop the consortium
purchasing, strive to improve the service quality and increase profits from economies of scale.

We shall drive small and medium circulation enterprises to implement brand strategies, vigorously develop characteristic, specialized
and branded operations, foster a batch of famous brands, carry forward and develop China’s time-honored brands with great efforts;
shall offer guidance to the said enterprises to carry out disturbed operation and change the status of old and identical business
modes, lack of service brand and inferior methods of competition focusing on “price war”; shall actively promote cooperation, franchise
operation, voluntary chains and other methods to set up a number of small and medium circulation enterprises with famous service
brands and advantages of subjects of diversified investment, with support from competitive enterprises.

Competent commercial departments in all localities shall actively coordinate with pertinent local departments, earnestly implement
various support policies laid down in the Circular of the General Office of the State Council on Transmitting Several Opinions of
the Reform Office of the State Council and the State Economic and Trade Commission Concerning the Promotion of Development of Chain
Operation (Guo Ban Fa [2002] No.49), simplify administrative procedures for examination and approval, exercise a unified tax collection
and reduce duplicate inspection so as to provide small and medium circulation enterprises with a good external environment for their
development.

We shall provide guidance to small and medium enterprises in applying information technology, which is suited to their own development
level and actual needs, with a view to conducting e-commerce pilot for these enterprises in areas where conditions permit.

IV.

We shall support the establishment small and medium circulation enterprises and relax restrictions on market access

We shall adhere to develop big circulation companies and large circulation groups simultaneously, encourage the establishment of small
and medium circulation enterprises, actively create new jobs, give more supports to these enterprises in terms of the market access,
the designated operation of franchised commodities and services as well as land use, make special provisions of State laws and regulations
as well as preferential policies granted to foreign-funded enterprises and big enterprises in various places available to small and
medium circulation enterprises, simplify procedures of examination and approval for the establishment of the said enterprises from
the standpoints of encouraging establishment and making the registration easier, and never specify pre-examination and approval unless
particularly stipulated by laws, administrative rules and regulations.

We shall create an external environment for fair competition, earnestly clear up administrative rules and regulations as well as policies
which are not conducive to the development of small and medium circulation enterprises, study and formulate policies and measures
which are both commensurate with rules of WTO and favorable to the development of the said enterprises, further rectify and regulate
the market order, seriously investigate undue conducts of competition, adhere to cancel the regional protectionism, create a market
environment favorable for the fair competition between small and medium circulation enterprises and large enterprises, effectively
alleviate burdens of small and medium circulation enterprises, supervise and inspect charges collectable which have been canceled
and insist on making investigation and giving punishments if more burdens are cast on small and medium circulation enterprises by
means of various pretexts and in disguised forms.

We shall support to carry out the integration of domestic and foreign trade, accelerate the integration between domestic and foreign
export-oriented enterprises, end the operation and management system concerning barriers between domestic and foreign trade for bulk
commodities, encourage small and medium circulation enterprises to carry out their import & export business and domestic operations
based on actual conditions of enterprises, promote the cooperation between domestic and overseas export-oriented enterprises as well
as their entrance into strategic and cooperative partnership, give an impetus to these enterprises to well display their respective
advantages and explore domestic and foreign markets together, offer financial support to small and medium enterprises meeting requirements
set forth in the Measures for Administration of the Funds for Small and Medium Sized Enterprises to Explore the International Market
(For Trial Implementation) and the Detailed Rules for the Implementation of the Measures for Administration of the Funds for Small
and Medium Sized Enterprises to Explore the International Market, boost small and medium circulation enterprises to attract advanced
experiences from foreign country and technologies for operation and management, encourage small and medium circulation enterprises
where conditions permit to implement strategies of “going global”, particularly to joint hands with dominating industrial enterprises
in opening up international market and to actively expand import and export trade and external service, and give the same treatments
to small and medium circulation enterprises as those to other enterprises in terms of external investment, import and export credit,
export credit insurance and other matters.

V.

We shall perfect the financing system of small and medium circulation enterprises and effectively solve difficulties in financing
problem

We shall actively strive for special funds set up by pertinent local departments for the development of small and medium enterprises,
give support to the development of these enterprises, encourage the establishment of funds used for the said development in areas
where conditions permit, or set aside part of funds which is used for the development of the said enterprises and under the unified
support of the government to give special assistance in the establishment of these enterprises, the expansion of operation and service
scales, the training for personnel, the credit guaranty as well as the construction of service system. Competent commercial departments
in all localities shall actively coordinate with any and all commercial banks, propel these banks to give more credit aid to small
and medium circulation enterprises in accordance with the spirits of the Guiding Opinions of the People’s Bank of China on Further
Strengthening the Credit Aid Given to Well-Performing and Trustworthy Small and Medium Enterprises with Marketable Products (Yin
Fa [2002] No.224), improve financial service offered to these enterprises, increase the line of credit and develop new credit service
items; shall encourage various credit guaranty agencies to actively carry out guaranty services oriented to small and medium circulation
enterprises; shall formulate corresponding policies, encourage and guide funds provided by all quarters of the society into the transformation
and development of small and medium circulation enterprises.

We shall broaden financing channels, support small and medium circulation enterprises meeting certain requirements to raise funds
by means of listing, re-arrangement of assets, equity swap and other means, encourage the equity participation of listed companies
and foreign businessmen, integrate small and medium circulation enterprises, guide, propel and regulate these enterprises to carry
out reorganization and transformation with foreign investment which is obtained by the means of equity or contractual joint venture
or transfer of property right. Small and medium circulation enterprises may apply for issuing enterprise bonds according to pertinent
State provisions.

VI.

We shall practically incorporate the development of small and medium circulation enterprises into the plan for the development of
local economy, and give active support to supply of land and power

Competent commercial departments in all localities shall make a rational layout for big, medium and small commodity network by combining
the urban development, urban renewal and the development of newly-built residential areas, promote the well-balanced growth between
large stores and small and medium shops, make rational arrangement for the land use of small and medium circulation enterprises,
provide these enterprises with living and development space. Competent commercial departments shall coordinate with urban planning
department, give support to small and medium circulation enterprises meeting requirements of the overall urban planning in utilizing
the land, from which industrial enterprises of large medium-sized municipalities, which produce a lot of pollution to urban districts,
cover wide area and is not adapted to the functional orientation of such municipalities, in accordance with such planning, and shall
gradually remedy irrationalities that the price for electricity consumed by circulation enterprises are much higher than that of
industrial enterprises.

We shall give more support to small and medium circulation enterprises located in central, western and northeastern parts of China.
Local competent commercial departments in western and northeastern China shall actively strive for and well implement various policies
concerning the development of the western region of China and the promotion of old industrial bases northwest of China, including
policies related to financial affairs, taxation and land use, encourage and attract domestic investors of all kinds jointly with
foreign businessmen to invest in small and medium circulation enterprises in central, western and northeastern parts of China.

We shall quicken the pace of development of small and medium circulation enterprises located in rural areas, actively encourage the
establishment of small and medium circulation enterprises serving farmers, rural areas and agriculture, pay attention to meet the
local needs, develop small and medium circulation enterprises with advantages by taking such measures as are suitable to local conditions,
absorb surplus rural labors with great efforts into the circulation industry, encourage dominating circulation enterprises to transform
existing rural circulation network, focus on the improvement of conditions for local circulation and service, enhance the level of
rural commodity circulation, and encourage small and medium circulation enterprises to grow into leading enterprises conducting integrated
operations of “trade, industry and agriculture, as well as production, supply and marketing”, and to participate in the circulation
of agricultural products.

VII.

We shall actively support small and medium circulation enterprises to carry out innovation in science and technology and technical
transformation

We shall actively advocate the application of modern management techniques of science and technology nature, raise capabilities of
small and medium circulation enterprises of applying modern scientific and technological achievements, support these enterprises
to transform technologies, change their images, play an active part in adopting modern means including the computer management, promote
the use of point sales system (POS) in the operations of retail enterprises and their stores, gradually establish and improve the
Management Information System (MIS), energetically create conditions and enhance the information level of small and medium circulation
enterprises.

We shall earnestly implement pertinent State policies on supporting the technical transformation of enterprises, incorporate technical
transformation items meeting requirements of State industrial policies into national debt items and give subsidies to these technical
transformation items. Competent commercial departments in all localities shall push for more support from relevant local departments
to small and medium circulation enterprises, formulate policies in a certain number to support the investment in technical innovation
and equipment purchase, as well as effectively support innovation in science and technology pursuant to related support policies.

We shall fully introduce financial and banking instruments to support circulation enterprises to adjust their structures, give key
support to the promotion and application of modern circulation modes. Local people’s governments at various levels shall, by granting
fiscal subsidies and approving land use, encourage the development of enterprises engaged in chain operation, particularly, support
enterprises to set up marketing network in the urban communities and rural areas; shall guide enterprises in redoubling their efforts
towards the transformation of traditional operation modes by means of information technology, in applying modern management technology,
promoting efficiency in management and reducing costs; shall encourage various circulation enterprises to develop their e-commerce.

VIII.

We shall establish and improve service system of small and medium circulation enterprises, provide human resources development and
offer information service

We shall encourage the establishment of public information service platforms oriented to a large number of small and medium circulation
enterprises in areas where conditions permit, so as to provide these enterprises with information services related to policies, technologies,
market and human resources.

We shall reinforce the training offered to human resources, integrate social resources, innovate training methods, form a training
mechanism of government leadership, social support as well as power of an enterprise in management, engage in the training offered
to small and medium circulation enterprises in terms of investment consulting and vocational skills, actively explore construction
of vocational education system in the field of circulation Industry, quicken the pace of training various talents required by these
enterprises, strengthen the career training, improve professional ethics of the employed, increase their awareness of credit standing,
competition and service, as well as enhance their professional competence.

We shall actively bring forces of industry associations into play, boost the development of intermediary organs, such as industry
associations of small and medium enterprises, give play to the role of these organs in serving enterprises, self-regulating industries
and reinforcing the communication between enterprises and the government, encourage various intermediary organs in the society to
strengthen their sense of service, provide small and medium enterprises with services related to the guidance and assistance in starting
their own businesses, to business diagnosis, marketing, investment and financing, loan guarantee, transaction of property rights,
technical support, personnel training, external cooperation, exhibitions and trade fairs and legal consulting.

IX.

We shall reinforce organization and leadership, and do solid work well

Competent commercial departments in all localities shall further change their mind, seek unity of thinking, fully recognize the great
significance of accelerating the development of small and medium circulation enterprises in the new stage under new circumstances
and a new system, really give an important priority to the promotion of development of the said enterprises, learn and use for reference
the experiences drawn from the development of small and medium enterprises with much support given and respects shown by governments
of developed countries, deal well with the support, guidance and service towards these enterprises, try to create a good environment
for them, carry out further research, exploration on and establish a statistical system regarding small and medium circulation enterprises.

We shall change functions, regard the support to the development of small and medium circulation enterprises as functions of competent
commercial departments, and focus on such support, fortify the sense in serving small and medium circulation enterprises, study specific
measures to solve difficulties and problems encountered by these enterprises on their way to development, reinforce media and publicity
work, fully utilize the news media to create a sound environment of public opinions for the development of such enterprises.

Competent commercial departments at various levels shall, under the leadership of and with support from local committees of CPC and
people’s governments, strengthen the communication and coordination among the development and reform commissions, financial sectors,
banking sectors, taxation authorities and administrations for Industry and commerce, play an active part in striving for understandings
and supports from all quarters of the society, present, in conjunction with pertinent departments, working plans and application
programs for the local implementation of the Law of the People’s Republic of China on the Promotion of Small and Medium-sized Enterprises
and these Opinions, enact and enforce specific policies and measures for driving the development of small and medium circulation
enterprises, clarify the focus of work, take such measures as are suitable to local conditions, truly deal well with coordination,
guidance and service work.