The new rules, due to be implemented from today, are the first of their kind in the country and target those retailers with annual sales of more than CNY10 million.
They are designed to stop retailers from charging suppliers' fees for activities unrelated to the sales of their products and they require retailers to pay for all stock ordered, even if it is not sold.
"This will exert a negative impact on those retailers whose profits derive from levying handsome fees on suppliers under numerous names. It will reduce their sales revenues and make it difficult for them to revolve funds," Huang Hai, assistant minister of commerce, told China Daily.
"On the other hand, it will protect small- and mid-sized suppliers from being intentionally exploited by retailers."
Major retailers like Wal-Mart said the rules were a positive move but many food producers contacted by AP-Foodtechnology.com had not heard of the new regulations.
China's retail industry has enjoyed rapid growth in recent years, fuelled by rising incomes and a wave of foreign retailers entering the sector. In response to this growth - more than 12 per cent in 2005, according to consulting firm ATKearney - the Chinese government has encouraged domestic retailers to merge to better cope with foreign competition.
The country's low fees for registering a retail company are also attracting new entrants to the sector. Registering a chain store group only costs CNY300,000 (€29,752) according to the China Daily.
"For most of those small-scale groups, the best way to circulate funds and make money is to levy various fees on suppliers such as entrance fees, decoration fees and promotional festival fees. Otherwise, they would collapse overnight," Huang told the paper.
While the rules do not prohibit entrance fees or sums charged for special promotions, they seek to exclude any fees levied for other expenses such as renovation and shop re-openings when there are no related product promotions for the supplier, or in exchange for signing and continuing a contract.
It also requires retailers to make payments within 60 days of receiving the stock.But with fines for retailers capped at CNY30,000 (€2,975) many analysts expect to see little benefit for suppliers.
"I am not very optimistic about the effect of this regulation," Hu Hongke, an analyst at Shenzhen-based China Merchants Securities, told AP-Foodtechnology.com.
"In a market where supply surpasses demand, the retailer who owns the precious sales channel has a greater say in negotiations with suppliers. I believe most suppliers will still take on inventory risks and pay fees, only maybe in other forms. And I don't think the supplier will sue when the retailer doesn't abide by the regulation."
He added however that the tough situation also encourages suppliers to enhance R&D capability, production and marketing.
A spokesperson at domestic retail chain Wumart added: "There used to be some very controversial issues or conflicts between the retailer and supplier, however, as the retail industry is becoming more mature and disciplined, the frictions are decreasing."
Additional reporting by Pan Yan.
