Order of the State Council
(No.443)
The Regulation on Direct Selling Administration, which was adopted at the 101st executive meeting of the State Council on August 10, 2005, is hereby promulgated, and shall come into force as of December 1st, 2005.
Premier Wen Jiabao
August 23rd, 2005
Regulation on Direct Selling Administration
Chapter I General Provisions
Article 1 The present Regulation is formulated for the purpose of regulating direct selling acts, strengthening supervision over direct selling activity, and preventing fraud, as well as protecting the lawful rights and interests of consumers and public interests.
Article 2 The present Regulation shall be followed for undertaking direct selling activity within the territory of the People’s Republic of China.
The scope of direct selling products shall be determined and publicized by the competent department of commerce of the State Council together with the administrative department of industry and commerce of the State Council according to the development of the direct selling sector and consumers’ demand.
Article 3 The direct selling, as mentioned in the present Regulation, is a type of business model, in which direct selling companies recruit sales promoters to sell products directly to end consumers (hereinafter referred to as consumers)outside the companies’ fixed outlets
The direct selling companies, as mentioned in the present Regulation, shall refer to the companies which sell products by way of direct selling upon approval according to the provisions of the present Regulation.
The sales promoters, as mentioned in the present Regulation, shall refer to any personnel who sell products directly to consumers outside the fixed outlets.
Article 4 Any company that is established within the territory of the People’s Republic of China (hereinafter referred to as the company) may, according to the provisions of the present Regulation, apply for becoming a direct selling company that sells the products produced by itself or the products produced by its parent company or holding company by way of direct selling.
A direct selling company may obtain trading right and distribution right according to law.
Article 5 No direct selling company or its sales promoter may have any fraudulent or misleading acts and other drumbeating and sales promotion acts when undertaking direct selling activities.
Article 6 The competent department of commerce of the State Council and the administrative department of industry and commerce of the State Council shall, according to the division of their own functions and the provisions of the present Regulation, be responsible for conducting supervision and administration on direct selling companies and sales promoters and their direct selling activities.
Chapter II Establishment and Alteration of Direct Selling Companies and Their Branches
Article 7 Anyone applying for becoming a direct selling company shall meet the following requirements:
1. The investor shall have sound business credit, and has no records of serious illegal operation during the past five years before filing the application; a foreign investor shall also have undertaken direct selling business for at least three years outside China;
2. The paid-in registered capital is no less than RMB 80 million Yuan;
3. The deposit has been paid in full amount in the designated bank according to the provisions of the present Regulation; and
4. The system of information reporting and disclosure as required has been established.
Article 8 Anyone applying for becoming a direct selling company shall fill in the application form and submit the following application documents and materials:
1. The certificate documents complying with the conditions as prescribed in Article 7 of the present Regulation;
2. Articles of association of the company, for Sino-foreign joint venture or cooperative companies, the contract of the joint venture or cooperative company shall also be provided;
3. The report on market plan, including the scheme for service networks in the area where direct selling business is undertaken as recognized by the people’s governments at or above the county level, which is drafted according to the provisions of Article 10 of the present Regulation;
4. Product specifications complying with the national standards;
5. Model text of the sales contract to be signed with the sales promoters;
6. Capital verification report issued by an accountant firm; and
7. Agreement concluded by the company with the designated bank for using the deposit according to the present Regulation.
Article 9 An applicant shall file an application with the competent department of commerce of the State Council through the competent department of commerce at the province, autonomous region, and municipality directly under the Central Government at its locality. The said department shall, within 7 days from the day of receiving the application documents and materials, submit the application documents and materials to the competent department of commerce of the State Council. The competent department of commerce of the State Council shall, within 90 days from the day of receiving all the application documents and materials, and upon soliciting the opinions of the administrative department of industry and commerce of the State Council, make a decision on whether to approve it or not. If an approval is granted, the competent department of commerce of the State Council shall issue the direct selling license.
An applicant shall, upon the strength of the direct selling license issued by the competent department of commerce of the State Council, apply for alteration registration to the administrative department of industry and commerce according to law. The competent department of commerce of the State Council shall, when making examination on and issuing the direct selling license, take into consideration such factors as national security, public interests, and the development of the direct selling sector, and etc.
Article 10 A direct selling company shall, when undertaking direct selling business, establish branches(hereinafter referred to as branches) responsible for the direct selling business within the administrative regions of the provinces, autonomous regions, and municipalities directly under the Central Government where it plans to undertake direct selling business.
A direct selling company shall, within the area where it undertakes direct selling business, establish service networks which may facilitate and satisfy consumers and sales promoters to know about the price of the products and the returning and changing of goods and for the company to provide other services. The establishment of such service networks shall meet the requirements of the local people’s governments at or above the county level.
A direct selling company shall, when applying for establishing branches, provide the certificate documents and materials complying with the provisions of the preceding paragraph, and shall file an application in light of the procedures as prescribed in paragraph one of Article 9 of the present Regulation. After the application is approved, the company shall go through registration at the administrative department of industry and commerce according to law.
Article 11 In case a direct selling company has any major alteration on any of the contents as listed in Article 8 of the present Regulation, it shall, in light of the procedures as prescribed in paragraph one of Article 9 of the present Regulation, report to the competent department of commerce of the State Council for approval.
Article 12 The competent department of commerce of the State Council shall publicize the name lists of the direct selling companies and their branches on the government website and update them in time.
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