China approves Wal-Mart control of Yihaodian

The Ministry of Commerce (MOC) has approved plans by Wal-Mart Stores, Inc. allowing the U.S. retail giant to control China's largest online supermarket, Yihaodian, on restrictive conditions.

If successful, the acquisition will help Wal-Mart grab a bigger slice of China's booming online shopping market.

Wal-Mart got the green light to increase its stake to 51.3 percent from 17.7 percent in a separate company that will own Yihaodian's online retailing business, according to a MOC statement released on Tuesday.

However, the acquisition "may have an effect of excluding or restricting competition in China's value-added telecommunications service market" and can only be completed under several restrictive conditions, said the statement released by the MOC's anti-monopoly bureau.

Apart from online retailing, Yihaodian also runs value-added services. The Chinese government allows foreign investors to hold up to a 50-percent stake in such operators in the country.

The acquired business will be limited to online retailing and the acquired company can not use its Internet platform to provide Internet services for other parties involved in the deal, the MOC instructed.

In addition, Wal-Mart must not engage in value-added services operated by Yihaodian through the variable interest entity (VIE) ownership structure, according to the ministry.

VIEs are a common practice under which foreign firms can control -- but not legally own -- companies operating in China to bypass restrictions on foreign investment in certain areas.

According to a statement released on Tuesday afternoon by Yihaodian, the deal still needs further regulatory approval and has to meet other conditions for final transactions.

"Yihaodian fully respects and welcomes the MOC's decision," it said. "We have maintained high-speed growth since launching in 2008 and will create greater value for consumers as our partnership with Wal-Mart deepens."

Wal-Mart submitted its acquisition plan to the MOC for approval in December 2011 and the examination was extended twice, according to the ministry, citing concerns that the deal may impede market competition.

As a major retailer in both the Chinese and the global market, Wal-Mart will be able to deliver its advantages in the physical market to online retailing business after the acquisition, the MOC assessed.

Because of its comprehensive strength in both offline and online retailing, the acquired company will be able to gain a dominant position if it is allowed to enter China's value-added service market through Yihaodian, and substantially increase its bargaining power with Internet users, the MOC concluded.

Founded in Shanghai in July 2008, Yihaodian sells a range of goods including food, cosmetics and consumer electronics.

The website had more than 18 million registered users as of May 2011, and its sales exceeded 800 million yuan (126 million U.S. dollars) in 2010, according to company information.

The online shopping market in China has been prospering despite an economic downshift, with the country's online population reaching 538 million by the end of June, including 210 million online shoppers.

Online shopping transactions reached 268.4 billion yuan in value in the second quarter of 2012, up 51.6 percent year on year, according to Internet industry research agency iResearch.

During that period, the country's B2C market value surged more than 140 percent from a year earlier to 89.4 billion yuan, iResearch calculated.

Xinhua's phone calls to Wal-Mart China's public relations manager were unanswered by the time the story was released on Tuesday afternoon.