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Direct selling rules established
By Zhang Lu (China Daily)
Updated: 2005-09-03 07:32

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.

Police and market law enforcers smashed a pyramid selling ring in central China's Henan Province on October 11, 2003. [newsphoto]

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 fulfil 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 licence, 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 per cent of their sales in the previous month.

(China Daily 09/03/2005 page5)

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