Every morning, dozens of Beijing residents make their way to the east gate of Tuanjiehu park, a sprawling oasis of trees and ponds located in the heart of the Chinese capital.

For several hours every morning, the streets of the Tuanjiehu neighbourhood are clogged with vegetable vendors, fruit sellers and farmers from the villages of nearby Hebei province.

Beijing residents, mostly the elderly and stay-at-home mothers, make their way to Tuanjiehu on bicycles from across eastern Beijing, and begin a daily ritual of inspecting produce and haggling with vendors as they exchange greetings with familiar faces.

In the two decades since China first opened its doors to 26 per cent Foreign Direct Investment (FDI) in the retail sector, neighbourhood markets such as this one in the Chinese capital have continued to coexist with big Chinese retail chains that have emerged in the past fifteen years, favoured by many Chinese as a source of fresher, and cheaper, produce.

While the experience of China has been cited by many as an argument for opening India’s sector, there are, however, at least two key differences in the organisation of China’s retail and in its opening process that are markedly different from the Indian context.

For one, unorganised retail — the sector that stands to be affected the most — has a much larger presence in India. Shi Yongheng, an economics professor from Tsinghua University who has studied the role of FDI in China’s retail sector, told The Hindu in an interview earlier this year that he believed that farmers and small retailers had, on the whole, benefited from the allowing of FDI which had improved logistics and procurement in the supply chain, even if many had indeed moved out of their jobs to cities as the sector underwent a reorganisation.

Mr. Shi and most Chinese economists welcomed the reorganisation in the sector, seeing it as employing too many people and too inefficient.

“The job losses have not been felt because of the pace of urbanisation and the growth of cities” which absorbed the lost jobs, Mr. Shi said, saying the process was part of China’s larger plan to accelerate urbanisation. Last year, China’s urban population exceeded its rural population for the first time.

The second crucial difference is that China gradually opened the sector, giving local chains enough time and protection to learn to compete with foreign entrants. China first allowed 26 per cent FDI in 1992, and expanded this to 51 per cent — what India has allowed — only 12 years later.

The government in China also set up what Mr. Shi describes as “invisible barriers” to limit foreign entry. Foreign firms were first only allowed to open in three cities, and given land in locations where local retail firms did not have a presence.

Mr. Shi said the entry of Walmart and Carrefour had helped make China’s retail sector more efficient, modernising the sector and increasing investment in supply chains. In China, the “foreign invasion” that many feared would harm the local sector and dominate the market did not materialise.

Today, China’s biggest retail chains are all Chinese, such as the Bailian group. Walmart, which has more than 350 stores in China, only has a 5.5 per cent market share, according to the China Market Research Group. The sector is diversified enough to ensure prices are kept low, Mr. Shi said.


Small is big in Asia’s booming retail sector September 30, 2012

FDI in retailSeptember 30, 2012

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