RETAILERS in China may lose their grey income as the commerce ministry will clamp down on their practice of imposing a non-standard charge, although an analyst warned that it will not be easy to eradicate.

Charging suppliers fees along with standard rent, sales commissions and promotion fees has been a common practice at large retailers in China as a way to maximize profit margins. But the practice has now been made illegal as the Ministry of Commerce prohibited it from Monday. It will also work with law enforcement agencies and market watchdogs to ensure retailers comply with the new rule.

Taking place from December to June 2012 the nation-wide overhaul of such unregulated practice aims at ''maintaining the market order and facilitating the retail industry's healthy development,'' the ministry said in a statement on its website.

The planned overhaul is also part of efforts to curb inflation as the National Development and Reform Commission will oversee market pricing. Local tax bureaus will keep a close check on tax dodgers while the industrial and commercial bureaus will check for commercial bribery.

Retailers that will be monitored include big supermarkets, department stores and home appliance store chains, which allegedly leverage their huge sales volume to overcharge suppliers under the guise of store entrance, shelf layout, and renovation, among others.

But an analyst said the impact of the regulation on the market is limited in the near future as it takes time to push it through.

"The government may face huge difficulties in setting up the new market order as retailers will play hide-and-seek with the authority to secure their earnings," Cui Hongbo, a partner at United Wisdom Consulting Group said. It is "easier to get income from a standard charge than to create a new business model."
 

Source:shanghaidaily.com