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CIRCULAR OF THE STATE COUNCIL CONCERNING THE BANNING OF OPERATIONAL ACTIVITIES OF PYRAMID SALES

    The State Council has decided to ban the operational activities of
pyramid sales to protect the legitimate rights and interests of consumers,
promote fair competition and maintain economic order of markets and social
stability. The relevant questions are hereby notified as follows:

    I.Pyramid sales operation which is not in line with the state of the
nation of China at the present stage has resulted in serious damage. Pyramid
selling as a mode of operation, due to its characteristics of organizational
closeness, concealed nature in transactions and the scattered nature of
sales persons, in addition, the level of market growth in China at present
is still low, the means of control is comparatively backward, consumption
mentality of the masses has yet to mature, lawless elements have taken
advantage of pyramid sales to conduct such activities as spreading heretical
beliefs, ganging up, superstition and hooliganism which seriously deviate from
the requirements of building of spiritual civilization and affect social
stability in China; taking advantage of pyramid selling to admit cadres of
organs of the Party and government, active-duty service personnel and students
in full-time schools to participate in business has seriously disrupted the
normal order in work and teaching; and taking advantage of pyramid selling
to indulge in price fraud and extortion of money and property, promotion of
the sales of imitated, fake and inferior quality products and smuggled
products to gain exorbitant profits and evade taxes has seriously harmed the
interests of consumers and interfered with the normal economic order.
Therefore, operational activities of pyramid sales must be firmly banned.

    II.Operational activities of pyramid sales in any form shall be banned
as of the date of issuance of this Circular. The enterprises in operation of
pyramid sales the registration of which had been approved prior to it shall
all stop forthwith the operational activities of pyramid selling, earnestly
complete the rehabilitation work of pyramid sales persons, settle creditor's
rights and liabilities on their own, convert to other modes of operation and
should go through the formalities of change in registration or nullification
of the registration at organs of industry and commerce administration
before October 31, 1998 at the latest. Whoever fails to go through the
formalities on expiry of the specified date shall be revoked of the business
licence by the organ of industry and commerce administration. Those
engaging in operational activities of pyramid sales on their own without
approval and registration shall be banned forthwith and investigated and
handled in all seriousness according to law.

    III.Intensifying efforts in law enforcement to sternly investigate and
ban all kinds of acts of pyramid sales and pyramid sales in disguised forms.
As of the date of issuance of this Circular, people's governments at all
levels and the department of industry and commerce administration and the
department of public security and other departments concerned must adopt
strong measures to firmly impose the ban and handle in all seriousness
upon discovery of any of the following acts:

    (1) that of turning pyramid selling from the open into underground;

    (2) that of conducting pyramid selling in the form of double-win system,
computer networking and framework sales;

    (3) that of conducting pyramid selling in disguised forms in the name of
monopoly, agency, franchise membership operation, direct sales, chains and
network sales;

    (4) that of conducting pyramid selling or pyramid selling in disguised
forms by employing such means as membership cards, savings cards, lotteries
and vocational training to gain membership fees, franchise membership fees,
licensing fees and training fees by cheating; and

    (5) other acts of pyramid selling and pyramid selling in disguised forms.

    The acts of pyramid selling and pyramid selling in disguised forms shall
be established and penalized by organs of industry and commerce administration
in pursuance of the relevant state provisions. The acts of making use of
pyramid selling to indulge in fraud, promote the sales of imitated, fake and
inferior quality products, smuggled products and to conduct activities of
spreading heresy, ganging up, superstition and hooliganism shall be
investigated and handled by the departments concerned; where a crime has
been constituted, the case shall be transferred to a judicial organ for
investigation of criminal liability according to law.

    IV.People's governments at all levels must strengthen leadership and the
departments concerned must closely cooperate with each other in firmly yet
safely carrying out the work of banning pyramid sales operation. Banning the
operational activities of pyramid selling is a policy-intensive difficult work
involving many aspects to which people's governments at all levels must
attach great importance and step up coordination under the command of a major
comrade-in-charge in person. The departments concerned must seriously
perform their functions and responsibilities, step up coordination and
cooperation. Organs of industry and commerce administration must sternly
investigate and handle acts of pyramid sales operation in contravention of
the spirit of this Circular; departments of public security must firmly ban
illegal activities endangering social order of making use of pyramid selling
or pyramid selling in disguised forms and cooperate with the departments
concerned in doing a good job in the maintenance of social stability and
social order; commercial banks concerned must support and cooperate with
organs of industry and commerce administration and public security in the
work of investigation and handling; information and publicity departments
must intensify their efforts in publicity, extensively publicize the harm
of pyramid selling, openly expose the fraudulent acts of pyramid selling
and timely expose typical illegal cases of pyramid selling to educate the
broad masses to raise their awareness and consciously boycott the
operational activities of pyramid selling and make timely reports on
the progress made by the departments concerned in banning the operational
activities of pyramid selling.

    People's governments at all levels and the departments concerned must
be firm in attitude and active in action and at the same time must be
painstaking in organization and safe in implementation when banning the
operational activities of pyramid selling so as to maintain normal economic
order and social stability.