Because we are one of very few law firms that represent foreign companies doing direct marketing in China we get quite a few emails from companies (and even individuals) regarding China’s direct marketing laws. Long story short, China does not particularly like direct marketing and its direct marketing laws are so restrictive that the industry there has little in common with direct marketing in the United States or even Europe.
The other day, one of our China lawyers received an email from a potential client with a link to a United States government site describing China’s direct marketing laws. The email was short and merely asked whether the information on this site was accurate or not.
It is accurate and current and and helpful and important and to the point and for those reasons I reprint it in full below.
Direct selling is defined by Chinese regulators as a type of business model involving the recruitment of direct marketing sales agents or promoters and the selling of products to end-consumers outside fixed business locations or outlets.
As part of China‘s WTO commitment, the Chinese Government agreed to allow market access for wholesale or retail trade services away from a fixed location. However, these new regulations are quite restrictive, especially in regards to multi-level marketing (MLM) organizations, which are characterized as illegal pyramids under these regulations. Sales promoters earn commission only according to their sales performance and the proportion of payment to sales promoters should not exceed 30 per cent of the income generated from sales. Furthermore, commission paid to a salesman is not allowed to be calculated based on the MLM structure, and language exists requiring the construction of fixed location service centers in each area where sales occur for the purpose of after-sales service and consultation. To obtain a direct sales license from the government, further barriers exist as evidenced by a three-year foreign experience rule, a required RMB 20-100 million (USD 2.9-14.5 million) bond deposit and a RMB 80 million (USD 11.6 million) registered capital threshold, among other requirements. Nonetheless, several major international companies have had success in overcoming these barriers. Having said this, the Chinese Government has remained slow to approve direct-sales license applications for new entrants over the past few years. In general, the Chinese central government and the relevant authorities at central and local levels tend to heavily regulate and supervise this industry.