The Chinese Government issued the long-awaited direct selling rules
on Friday, giving a legal standing to a business model that had
been banned in the country since 1998.
The State Council issued the Regulation of Direct Selling
Administration, which will become effective from December 1, and
the Anti-Pyramid Selling Regulation.
"The legislation is to guide and regulate the development of the
direct selling sector in China," the Xinhua News Agency quoted the
spokesperson from the State Council as saying.
It is also to fulfill China's commitment to the World Trade
Organization. The country promised to open the direct selling
business within three years of its WTO entry. However, the lack of
regulations made it practically impossible.
Direct selling giants like Amway Corp and Avon Products Inc
expressed their welcome and support for the new regulations.
"The company is pleased to see direct selling receive legal
standing in China," Amway said in a statement on Friday.
The Regulation on Direct Selling Administration imposes
stringent requirements on market entry for direct sellers, their
operations and sales promoters, aiming to protect consumers and
stop illegal operators.
According to the regulation, "direct selling" is a type of
business model, in which companies recruit sales promoters who sell
products directly to end consumers outside the companies' fixed
outlets.
It requires that sales promoters earn commission only according
to their sales performance, prohibiting a multi-level payment
system.
Investors, who apply for a direct selling license, must have
sound business credit, with no illegal operation records during the
past five years. And for foreign investors, enterprises must have
been involved in the direct-selling business for at least three
years outside China.
The regulation also requires that direct selling companies have
at least 80 million yuan (US$9.86 million) in registered capital
and a deposit of 20 million yuan (US$2.47 million) at
establishment.
When the companies start operation, the deposit should remain at
15 percent of their sales in the previous month.
(China Daily September 3, 2005)