Draft direct selling law set for September

By Dai Yan (China Daily)/May 14, 2004

A draft regulation governing foreign-funded direct selling companies is expected in September, according to Richard Holwill, vice-president of public policy for Alticor Inc, the parent company of Amway.

Holwill, who is visiting China, talked with officials from the Ministry of Commerce yesterday and said he was pleased with their discussions.

He said the regulation was totally in time with China's commitments to the World Trade Organization and that he appreciated Chinese Government's openness to suggestion.

China is expected to lift a ban on direct selling and set down rules governing distribution modes within the third year of its WTO accession.

Drafting was first confirmed by Deng Zhan, deputy director-general of the MOFCOM's Foreign Investment Administration, when he addressed a US-China Business Dialogue conference in February this year.

"Illegal pyramid selling will face a serious crackdown while legitimate direct selling companies from home and abroad will receive encouragement and support from the Chinese Government," Deng said.

Holwill said he believed the regulation will create a good environment for the direct selling industry to develop in China.

The business of direct selling has been developing quickly around the world and has a market value of US$85.58 billion and a salesforce of more than 47 million.

The industry's revenue in China reached 35 billion yuan (US$4.23 billion) last year.

A clear legal definition will boost the industry, Holwill said.

Holwill would not say whether Amway, a global manufacturer of cleaning products, cosmetics and nutritional supplements, would make substantial changes to its current sales mode here because of the legislation.

"I can not speculate on that until we get a final decision on the legislation," he said.

But Holwill said the current mode is working well in China and Amway would continue in the way which had proved effective for it.

China imposed a ban on direct sales in 1998, saying it was hard to differentiate direct sales from so called "pyramid sales," which had led to widespread fraud, consumer losses and social disorder.

Ten foreign-funded direct selling companies were allowed to continue their operation in China after the 1998 crisis, but they had to change their sales mode to selling goods through retail outlets and "non-employee" sales representatives.

The companies usually sell without fixed outlets, but the transition has been successful and they achieved quick growth rates in China.

The Chinese market now becomes Amway's largest, with revenue in China reaching US$1 billion last financial year.

Its revenue in 1997 was US$180 million.

Local Amway officials also denied they will slow down their pace in opening retail outlets in China because of the legislation.

"We will increase outlets to 180 by the end of this year from the current 120, and they mostly will be located in second-tier cities in China," the official said.

Holwill said he was delighted that direct selling companies have opportunities to consult the Chinese Government, and that the government was asking for and accepting advice on these issues.

He said the MOFCOM officials had told him that officials working on the draft welcomed comments from related industries.

"They listen to us, and we can not ask for more," he said.

A group of Chinese officials had paid a visit to the United States in February and gained on-site experience of how direct selling was running there.

Holwill said the group had discussed the framework of the regulation with industry representatives from Amway, Avon, Mary Kay and Nu Skin.

"The trip laid out the grounds for the structure of the legislation," Holwill said.

The World Federation of Direct Selling Associations, including Amway, has also submitted a paper to China containing the opinions of its members.

Holwill also ruled out worries that advantages would be given to foreign-funded direct selling companies.

Local companies are concerned that the industry will first be opened to foreign investors since the regulation is being drafted with reference to foreign-funded direct selling companies.

Holwill said he was told that the regulation will be a national treatment.

"Both foreign and domestic companies will benefit from the opening," he said.

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