The rating system is incorporated by the Provisional Administrative Measures on Foreign-funded Commercial Enterprises, which will replace a pilot rule on foreign-funded commercial enterprises implemented in 1999.

According to the proposal, companies which have abided all regulations will receive top marks, or an "A" rating, and will have no future investment restrictions.

Those that have stepped out of regulatory bounds and then corrected their ways will get "B" ratings and will not be allowed to set up new foreign-funded commercial enterprises or open new outlets in the country for one year.

Retailers deemed repeat offenders will be blackened with a "C" grade, meaning planned investment may be held back indefinitely.

According to an official from the Ministry of Commerce, who declined to be named, drafts of the new measures have been circulated among foreign and local companies.

"The draft is still open for comments," the official said.

"The rating system is aimed at regulating disorderly competition in the sector and does not aim to curb foreign expansion," the official said.

The new rules just affect foreign investors that have been operating without obtaining required licences from the Ministry of Commerce, he added.

Some foreign retailers have been operating illegally with permission from local governments, but not the central authorities.

Some local governments, who have a strong willingness to attract foreign investment, boldly opened the commercial sector and went further than China's promises to the World Trade Organization.

China allowed foreign-funded retailers to enter 13 cities in the first year of its WTO accession, which was in December 2001, but they are actually playing a role in more than 30 cities.

China's WTO agreements to lift the restrictions gradually aims to offer a transitional period for local players in the commercial area, the official said.

But the illegal and aggressive expansion by some foreign investors did not give local businesses enough time for preparation and many of them operated under great pressure.

The new administrative measures also want to give fair treatment to foreign investors who are playing by rules, the official said.

(China Daily December 22, 2005)