Fair Competition and Preferential Taxation Policy for Small & Medium Retail Stores in China: A Comparative Study

Abstract

In recent years, the use of slotting allowances and other shelf-access payments by
retail stores and supermarkets has reportedly increased in China. Many Chinese
commentators criticised such conduct as significantly distorting the fair competition
order in the retail market and harming the legitimate benefits of consumers, suppliers
and small-medium retailers in China.1
Chinese governmental agencies have attempted to eliminate slotting allowances by
launching national campaigns to investigate and crack down on the illegal conduct of
large-scale retailers against suppliers. 2 However, it is still not clear whether
government intervention is the most appropriate and effective solution. After several
campaigns, it seems that the slotting fee problem still exists. Indeed, slotting allowances have been a very controversial issue around the world. It remains a
debatable question whether competition law is the best instrument to resolve the
slotting allowance issue.3
This paper examines whether preferential taxation policy for SME retail stores could
serve as an alternative solution for the slotting allowances issue in China. Part I
examines the status quo of supermarket slotting allowances in China and Part II
compares this with similar practices in other jurisdictions — particularly in the United
States (the US) — by examining both the benefits and the harms of slotting fees. Part
III examines the disadvantageous situations of SME retailers and suppliers in the
Chinese retail market and explores the main reasons and rationales for them. It further
considers the major problems with the existing laws and policies on slotting fees and
the SMESME businesses in China, focusing in particular on the problems with the
current taxation system. Part IV and Part V compare and critically reflect on how other
countries use special laws or taxation policies to help promote the development of
SME enterprises and to contribute to the resolution of slotting fee issues. By extracting
lessons from the relevant laws and policies in Germany, Japan, the United Kingdom
(UK) and the Hong Kong Special Administrative Region of China (HK), the paper
provides some practical suggestions for future law and policy reforms. Finally, it
concludes that a more heterogeneous approach should be taken and that it is important
to make competition law and taxation policy work collaboratively to solve these
problems.