commercial history of china - warringtonbear.warrington.ufl.edu/oh/iret/slides/1.1commerical history...

David F. Miller Center For Retailing Education and Research

International Retailing Education and Training (IRET )

Commercial History of China

History Module David F. Miller Center for Retailing Education and Research

•China has a long retail history and

rich commercial past

•Since Marco Polo’s time, it has been

sought as trading partner by the West

•However, China has gone through

periods of outreach and isolationism

•Its planned Communist economy and

trade with the West are very recent

phenomena

China’ Commercial History

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Qin Dynasty (221 – 206 B.C.E.)

):

First united Chinese state

Standardized Chinese

language, measurements,

and currency.

Construction of the Great

Wall of China began.


Han Dynasty (207 B.C.E. to 220 C.E.)


Han Dynasty (207 B.C.E. – 220

Silk Road

59 million people


Tang Dynasty (618-907 AD)


Tang Dynasty (618-907)

The most prominent historic

period

The most powerful and

prosperous country in the

world.

Chang’an (modern Xi'an),

the national capital, is

thought to have been the

world's largest city at the

time.

Continue to expand trade

route

Exerted a powerful cultural

influence over neighboring

states

Buddism predominant

religion

http://en.wikipedia.org/wiki/Chang'an

http://en.wikipedia.org/wiki/Xi'an


Ming Dynasty (368-1644)

Built bureaucracy

More introspective

Focus on agriculture,

small scale capitalism

Class system emerges


Qing Dynasty (1644 to 1911)

Reversed

encouragement of

capitalistic tendencies

Limit size of factories

High taxes on merchants

Closed-door policy

Only Guangzhou kept

open, to trade tea, silk,

medicine and porcelain

for woolens, cotton

textiles, spices


Qing Dynasty

First Opium War (1839)

and Treaty of Nanjing

(1842)

Second Opium War (1856)

and as a series of unequal

treaties Purchase British products,

especially Opium.

Opened the Shanghai port and various other ports of Western trade

China became an half feudal and half colonial society Government powerless to stop

foreign land grabs and mistreatment of citizens

Gambling, opium, prostitution in Shanghai


Republic of China-1911


Republic of China

Modern China

Republic of China (1912)

Fights among provincial

military leaders

Sino-Japanese War

(1937-1945)

Civil War (1945-1949)


Flag of the People’s Republic of China


Retail Development 1912-1948

Many foreign investors – but also a ruling merchant class of Chinese

Foreign goods gain increasing acceptance

About 200 newspapers and magazines were published

Major department stores opened on Nanjing Road in Shanghai: Sincere, Wing On, and Shui Hing

Shanghai department store Sun Sunestablished radio station in 1927


People’s Republic of Chia

People’s Republic of

China

Communists founded the

People’s Republic of

China in 1949

Nationalists Kuomintang

retreated to Taiwan and

became the government

of the Republic of China


Basic facts

Political system

Communist Party-led

state

Chinese Communist

Party


Set deadline of 1956 to transform private

businesses into “whole people enterprises”

In next 5 years, state expropriates all major

industries

Cultural Revolution (1966-1976) creates poor

climate for “retailing” as typically known

1949 – Formal Beginning of PRC


Communists seize power in early 1950s

Defeated Nationalist group heads to Taiwan

“Commercial” group goes to Hong Kong

These two groups create thriving retail

communities

Impact of Communism:

Off-shore Retailing in China

Aberdeen St.

Hong Kong

1960


Brief History of Retailing in China after the

Establishment of P. R. China

Two important periods

1949-1978

Before Reforms: planned economy

1979-present

The reforms: socialist market economy with Chinese

characteristics. Reforms occurred first in major special

economic zones and cities, then spread to the whole country.

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Shopping During Mao Era

Ration coupons were required to

buy cloth, but a selection of

fabric drew customers to Beijing

Department Store on

Wangfujing Street in 1983.


Socialist Planned Economy before 1978

Set deadline of 1956 to transform private

businesses into “whole people enterprises”

In next 5 years, state expropriates all major

industries

State Planning Commission decides factory

production goals, allocates raw materials.

Wholesalers and retailers were government-

owned, and just storage facilities.


FENPEI allocation system(1949-1978)

The State Planning Commission decided on general

production goals for the factories in China.

The factories would then be allocated raw materials an

told to produce necessary products.

After production, the goods would be shipped to the

Ministry of Commerce Central Distribution Centers.

Products were distributed to consumers through national

distribution systems.


Category 1: vital to national economy and people’s

livelihood (rice, cotton, coal, fuel); distribution run

by state units

Category 2: includes things like bicycles, watches,

sewing machines, radios; controlled by industrial

ministries

Category 3: “non-essential” items

Pre-Reform: “Soviet” (“Fenpei”) Approach: 3

Product Categories


Before Reform (1949-1978)

Under merchandise shortage, how much each kind

of product a consumer could purchase each month

was determined by the government.

Food

Coupons

Cloth

Coupons

Vegetable

Coupon

Soap

Coupon

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Distribution System(1949-1978)

Components

Manufacturers/Importer

Wholesalers

– Three Levels

Retailers

Controlled by Ministry of Commerce

Operated by special state-owned companies

Price, gross margins were determined by the government

not the market.


Figure 1 China’s Distribution System before Reforms

(Tseng, Kwan, and Cheung, 1995)

Manufacturers/

Importers

1st level

wholesalers

2nd level provincial

3rd level

district

2nd level Provincial

3rd level

district

3rd level

district

3rd level

district

Retailer

Retailer

Retailer Retailer

Retailer

Retailer

Retailer


Before Reforms (1949-1978)

Ownership of the Distribution System

State-owned

Monopolized distribution channels

Collective

Less important

Private

Negligible


The Reforms (1979-present)

Decentralization of Distribution Authority

Going through state-owned wholesale channels became

non-mandatory.

Management Reforms in Retail Outlets

State-owned wholesalers and retailers were held

accountable for their own profits

Lift of Restrictions on Retailing

Price could be negotiated.

Foreign retailers could operate in China.

Retail Ownership Become diversified

State-owned ↓, Private and foreign ↑

Consumers have greater freedom.

Product shortage ended and food coupons were

abandoned at the early 1990’s.


Liberalization of Foreign Entries

Step 1: 1992 Experimental cities: 6 cities (Beijing, Shanghai, Tianjin,

Guangzhou, Qingdao, and Dalian) and 5 special economic zones (Shenzhen, Zhouhai, Shentou, Xiamen and Hainan)

Each city could have 1-2 foreign retailers (Shanghai had 4) . Other cities are forbidden to accept foreign retail investment.

The retail stores must be joint venture. Sole-owned foreign retailer is forbidden. Chinese partner should have at least 51% of shares.

They could not be wholesalers.

No more than 30% of imported products.


Liberalization of Foreign Entries (Cont.)

Step 2: 1995 Foreign retailers can operate chain stores in Beijing.

Foreign retailers can partially enter wholesale section.

They must be joint venture and 51% share is owned by for Chinese partners.

Licenses are for no more than 30 years.

Step 3:1999 Foreign retailers can enter the capitals of provinces and

autonomous regions.

The number and scope of the foreign retailers operating in China increased.

Step 4: 2004 2001, China joined WTO

Three years later, all restrictions on foreign retailers were removed.


Summary

China has a long history of retail and wholesale

trade

Vacillates between periods of isolationistic and

expansive policies

Period of planned economy under Communism is a

small slice of China’s history but till affects retail

development

Government and party plays a major in developing

strategic direction

Since joining WTO, there are few impediments to

foreign entry and the growth of modern retailing


Secured by England after 2nd Opium War in 1841

Was center of opium trade – the main Western

export to China

1898: British forced 99-year lease; reverted to

China in 1997

After Communist takeover in 1949, millions fled

mainland for Hong Kong

By 1980s, Hong Kong was one of richest business

centers in the world

Over 50% of tourist spending is on shopping!

Hong Kong Retailing History


Japanese: Seibu (now Dixon Concepts luxury

group), Seiyu, Ito-Yokado [Note: others have exited

H.K., including Mitsukoshi]

Recent increase in hypermarkets, convenience

stores, supermarkets, including Watson’s,

ParknShop, Fortress (all part of #1 retailer Watson

& Co.)

Dairy Farm operates 7-11 Stores, Wellcome

(drugstore), IKEA stores

Jusco (department stores)

Many independent and open-air markets

Major Retailers in Hong Kong


Original inhabitants: non-Chinese

Chinese immigrants from Giangdong and Fujian

arrive in 1400s

Europeans (Portuguese, Dutch) during 1500s and

1600s, followed by Ming and Qing Dynasties (Qing

from 1683-1895), then Japanese (1895 – WWII)

Nationalists under Chiang Kai-shek established

martial law in 1949 – 1987

Gradual loosening/freedom 1987-present

“Retail” History of Taiwan


Uni-President Enterprises is leading group, with

major ownership shares of 7-Eleven, Carrefour

#2 is Shin Kong Mitsukoshi Department Store

Far Eastern Group: SOGO

Major Retail Forces in Taiwan


Internet and home shopping popular

Internet and catalogue orders picked up at

convenience stores following home ordering

Hypermarkets -- Makro, Carrefour, Geant, B&Q –

beginning in 1996

Many small, independent shops remain: account

for 87% of retail sales

Major Retail Forces in Taiwan

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