The Ministry of Commerce  yesterday officially announced the Management Rules on Fair Transaction Between Retailers and Suppliers, the first regulation of its kind in China, in a bid to create a more business-friendly environment, especially for suppliers.

"This will exert a negative impact on those retailers whose profits derive from levying handsome fees on suppliers under numerous names. It will reduce their sales revenues and make it difficult for them to revolve funds," Huang Hai, assistant minister of commerce, told China Daily. "On the other hand, it will protect small- and mid-sized suppliers from being intentionally exploited by retailers."

Major retailers are giving their nod to the newly launched rules, but analysts seem to doubt the rules will work as expected.

China's retail industry has enjoyed an annual growth rate of 10 per cent in recent years, Huang said. According to Ernst & Young, this year, the sector is expected to increase sales revenue by 12 to 13 per cent.

The strong momentum and low fees for registering a retail company are encouraging an increasing number of people to enter the retail sector. Registering a chain store group only costs 300,000 yuan (US$37,974).

"For most of those small-scale groups, the best way to circulate funds and make money is to levy various fees on suppliers such as entrance fees, decoration fees and promotional festival fees. Otherwise, they would collapse overnight," Huang said.

This puts great pressure on suppliers. They must now submit to the retailers that hold up channel resources and gain advantageous positions.

"The rules aim to supervise retailers and crack down on activities among them such as levying fees and delaying payment for products," Huang said.

Major retailers welcome the rules. "This is a good news for big retailers. The rules could normalize the market and lead to a healthier and more mature retail market. We are studying it," said Song Hong, general manager of Dazhong Electronics Co Ltd.

He Yangqing, director of the brand management department under Gome Electrical Appliances Group, agreed.

"The more normalized the sector is, the more benefits we can reap. We would not be negatively affected, because we have been very self-disciplined," he said. "I am not sure about the negative effect on major retailers. I hope they can do better."

Many analysts, however, don't think highly of the rules.

"I don't think the rules could fundamentally change the situation as retailers' aggressiveness cannot disappear overnight," said Hu Hongke, an analyst of the Shenzhen-based China Merchants Securities.

The rules are expected to go into effect on November 15. The regulation states that the fines for retailers caps off at 30,000 yuan (US$3,797).

(For more biz stories, please visit Industry Updates)