The Reform of China's Distribution System and Its Opening to the Outside World
Han Jinglun Professor of International Business, Marketing and Trade, Nankai University, Tianjin, P.R.China
Abstract
This article introduces the reform of China's distribution system and also its opening to the outside world. The article consists of the following parts:
In the first part, an introduction is made for the characteristics of China's market, which is the biggest and most potential market in the world with 1.3 billion customers for many years. However, the huge market offered very few opportunities for international marketers due to the reasons that China has experienced a rigid command economy and closed its door for many years and that the people's income had been increased very slowly in almost 30years. They could not purchase a lot of products both from domestic market and the world market as well. Introduced in this part are also what has been done in general for China to reform this rigid distribution system after the economic reform (1978) and also the challenges and opportunities that China will face when China gets an entry into WTO. Under these circumstances, multinational companies have already come into China to invest and more of them will enter China's market to invest and do more trade in China.
The second part of this article proposes a historical review of the old China's distribution system. In this part, the China's traditional distribution system before the reform (1978) is firstly described as 3 central and vertical levels of wholesales (from manufacturers to first, second, and third levels and then to the retailer and customers). And then, the characteristics of this system is further explained as the following: (1) All kinds of products were produced by the state-owned agents (enterprises) at different levels; (2) At the same time, nearly all kinds of products were distributed by the state-owned wholesalers from the state level down to the lowest administrative level; (3) The distribution structure of this system consisted of two types of organizations: planning organizations and the administrative organizations. Thirdly, an analysis is made on the nature of the ownership for China's distribution organizations, i.e. the state-owned, the collective and the private-owned distribution networks. However, it was only the state-owned distribution network that monopolized the distribution system and commercial channels in China before 1978. Fourthly, the major two disadvantages of this system are pointed out as follows: (1) This system was highly rigid; (2) The efficiency of this distribution network covering both wholesale and retail was at low side.
The third part of this article gives a vivid picture of the reform for China's distribution system, which can be divided into 4 stages (phases) :In stage one (1978-1985), some trial work was done to clear the ground and give some autonomous right to the enterprises; In stage two (1986), the production contract system was introduced and the distribution channels from vertical linkage to horizontal one were made; In stage three (1989-1991), some effective measures were taken by China's government to consolidate and rectify the problems in economic system and distribution channels; In stage four (1992 to present), some more new effective measures were adopted to perfect the socialist market economic environment, especially, the establishment of the health and highly efficient commercial distribution system. In the end of this part, the present situation of China's distribution system is thoroughly described in detail.
The fourth part of this article is about the process, policies and measures that China has taken to open its commercial sector and distribution channels to the outside world. As a matter of fact, the commercial sector was opened to the outside world much later than other sectors of China's economy. However, it goes very fast and more achievements have been made in the reform of China's commercial system and distribution channels. More foreign investment has been introduced and many international commercial and distribution organizations and companies have come to China to operate their business. Most of them have made remarkable profits in China's market. Some more multinational commercial companies will come to China to do business after China gets an entry into WTO. In the last part of this article, some tentative and important remarks are made.
Key words: Reform, Distribution System, Commercial Market, Opening to the Outside World
