Laws of the People's Republic of China

the State Council

Order of the State Council of the People's Republic of China

No.443

The Regulations on Direct Selling Administration, which were adopted at the 101st executive meeting of the State Council on August 10, 2005, are hereby promulgated, and shall go into effect as of December 1st, 2005.

Premier of the State Council Wen Jiabao

August 23rd, 2005

Regulations on Direct Selling Administration

Chapter I General Provisions

Article 1

With a view to regulating direct selling acts, strengthening supervision over direct selling activities, preventing fraud and protecting the legitimate rights and interests of consumers and public interests, the present Regulations are formulated.

Article 2

The present Regulations shall be subject to the direct selling activities undertaken within the territory of the People's Republic of China.

The scope of direct selling products shall be determined and promulgated by the competent department of commerce of the State Council jointly with the administrative department of industry and commerce of the State Council on the basis of the development of the direct selling industry and the demands of consumers.

Article 3

The term "direct selling" as mentioned in the present Regulations refers to a type of business mode, in which direct selling companies recruit door-to-door salesmen to sell products directly to ultimate consumers(hereinafter referred to as consumers)outside the companies' fixed places of business.

The term "direct selling companies" as mentioned in the present Regulations refers to the companies which, upon approval, sell products by way of direct selling according to the provisions of the present Regulations.

The term "door-to-door salesmen" as mentioned in the present Regulations refers to any personnel who sell products directly to consumers outside the fixed places of business.

Article 4

Any company that is established within the territory of the People's Republic of China (hereinafter referred to as the company) may, in accordance with the provisions of the present Regulations, apply for establishing 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 the trade right and distribution right according to law.

Article 5

When undertaking direct selling activities, no direct selling company or its door-to-door salesman may conduct any fraudulent or misleading acts and other drumbeating and sales promotion acts.

Article 6

The competent commerce department and the administrative department of industry and commerce of the State Council shall, in line with the division of their responsibilities and the provisions of the present Regulations, be responsible for conducting supervision and administration on direct selling companies and door-to-door salesmen as well as their direct selling activities.

Chapter II Establishment and Alteration of Direct Selling Companies and Their Branches

Article 7

Anyone applying for establishing a direct selling company shall satisfy the following requirements:

1.

The investor shall have good commercial reputation, and have no records of serious illegal operation during the past five years before filing the application; in the case of a foreign investor, it shall, in addition, have undertaken direct selling business outside China for at least three years;

2.

The paid-in registered capital shall be no less than RMB 80 million Yuan;

3.

The deposits shall have been fully paid in the designated bank in accordance with the provisions of the present Regulation; and

4.

The system of information reporting and disclosure shall have been established as required.

Article 8

Anyone applying for establishing a direct selling company shall fill out the application form and provide the following application documents and materials:

1.

the certification documents conforming to the conditions as provided for in Article 7 of the present Regulation;

2.

articles of association of the company; in the case of establishment of a Sino-foreign joint venture or cooperative company, the contract of the joint venture or cooperative company shall be provided as well;

3.

the report on market plan, including the scheme for service networks in the area where direct selling business is conducted as recognized by the people's governments at or above the county level, which is drawn up according to the provisions of Article 10 of the present Regulations;

4.

descriptions of products up to the national standards;

5.

model sales contract to be signed with the door-to-door salesman;

6.

report on the verification of capital as issued by an accounting firm; and

7.

agreement concluded between the company and the designated bank on using the deposit according to the present Regulations.

Article 9

An applicant shall, through the competent commerce department at the province, autonomous region, and municipality directly under the Central Government at its locality, file an application with the competent commerce department of the State Council. The competent commerce department at the province, autonomous region, and municipality directly under the Central Government shall, within 7 days as of the day of receipt of the application documents and materials, submit the application documents and materials to the competent commerce department of the State Council. The competent commerce department of the State Council shall, within 90 days as of the day of receipt of all the application documents and materials, and upon the opinions solicited from the administrative department of industry and commerce of the State Council, make a decision on whether or not to approve it. And if an approval is granted, it shall issue the direct selling license.

An applicant shall, upon the strength of the direct selling license issued by the competent commerce department of the State Council, apply for registration of alteration to the administrative department of industry and commerce according to law. The competent commerce department of the State Council shall, when carrying out examination and issuing the direct selling license, take into account such factors as national security, public interests, and the development of the direct selling sector, etc.

Article 10

When undertaking direct selling business, a direct selling company shall, in the administrative regions of the provinces, autonomous regions, and municipalities directly under the Central Government where it plans to undertake direct selling business, establish branches(hereinafter referred to as branches), which shall be responsible for the direct selling business within their regions respectively .

A direct selling company shall, within the area where it undertakes direct selling business, establish service networks which may facilitate and satisfy consumers and door-to-door salesmen to know about the price of products and returning and changing of products and for the company to provide other services. The establishment of such service networks shall satisfy the requirements of the local people's governments at or above the county level.

When applying for establishment of branches, a direct selling company shall provide the certification documents and materials complying with the provisions of the preceding paragraph, and shall file an application according to the procedures as provided for in paragraph one of Article 9 of the present Regulations. After approval is granted to the application, the company shall register with the administrative department of industry and commerce according to law.

Article 11

In the case of any major alteration in the contents as listed in Article 8 of the present Regulations, a direct selling company shall, in light of the procedures as provided for in paragraph one of Article 9 of the present Regulations, report it to and seek approval from the competent commerce department of the State Council.

Article 12

The competent commerce department of the State Council shall promulgate on the government website the name list of the direct selling companies and their branches, and update it in a timely manner.

Chapter III Recruiting and Training of Door-to-door salesmen

Article 13

A direct selling company and its branches may recruit door-to-door salesmen. Any other entity or individual is not allowed to recruit any door-to-door salesman.

The lawful selling activities of door-to-door salesmen may not be investigated and punished on the ground of unlicensed business.

Article 14

No direct selling company or any of its branches may promulgate any advertisements drumbeating the remunerations for its door-to-door salesmen, nor may it have the payment of fees or purchase of commodities as the conditions for becoming a door-to-door salesman thereof.

Article 15

No direct selling company or any of its branches may recruit the following personnel as a door-to-door salesman:

1.

person under the age of 18;

2.

person without capacity or with limited capacity for civil conduct;

3.

full-time school students;

4.

teachers, medical personnel, public servants and soldiers in active service;

5.

formal employees of the direct selling company;

6.

overseas personnel; and

7.

personnel as prohibited from taking part-time jobs by laws or administrative regulations.

Article 16

A direct selling company and its branches shall conclude a sales contract with any door-to-door salesman it recruits, and shall ensure that its door-to-door salesmen carry out direct selling business only in the province, autonomous region, and municipality directly under the Central Government where one of its branches has established service location. Any person who fails to conclude a sales contract with a direct selling company or any of its branches may not carry out direct selling business by any way.

Article 17

A door-to-door salesman may, within 60 days as of the day of conclusion of the contract, rescind a sales contract at any time; after the 60 days as of the day of conclusion of the contract, it shall notify the direct selling company 15 days before rescinding the sales contract.

Article 18

A direct selling company shall be responsible for organizing the vocational training and examination of the door-to-door salesmen it recruits, and shall issue the certificates of door-to-door salesman to the door-to-door salesmen who have passed the examination. Anyone who fails to obtain the certificate of door-to-door salesman may not undertake direct selling activities.

No direct selling company may charge the door-to-door salesman any fees for the vocational training and examination.

No entity or individual outside a direct selling company is allowed to organize the vocational training of door-to-door salesmen in any name.

Article 19

The teaching staff who give vocational training to door-to-door salesmen shall be the formal employees of the direct selling company, and shall satisfy the following requirements:

1.

Having worked in the companies for more than one year;

2.

Having received graduate or post-graduate education and having the relevant professional knowledge of law and marketing;

3.

Having no records of being punishment for deliberate crimes; and

4.

Having no records of major illegal operation.

A direct selling company shall issue the certificates of direct selling trainer to the teaching staff that satisfy the provisions of the preceding paragraph, and shall report the name list of the personnel who have obtained the certificate of direct selling trainer to the competent commerce department of the State Council for record. The said department shall promulgate on the government website the name list of the personnel who have obtained the certificate of direct selling trainer.

No foreigner may undertake the vocational training of door-to-door salesmen.

Article 20

The certificate of door-to-door salesman and the certificate of direct selling trainer issued by a direct selling company shall be printed in the format as prescribed by the competent commerce department of the State Council.

Article 21

A direct selling company shall be responsible for the legitimacy of the vocational training of door-to-door salesmen, the training order and the safety of the training places.

A direct selling company and its direct selling trainers shall be responsible for the legitimacy of the teaching contents of vocational training of door-to-door salesmen.

The concrete measures for the administration of vocational training of door-to-door salesmen shall be separately formulated by the competent commerce department of the State Council and the administrative department of industry and commerce of the State Council in conjunction with the relevant departments.

Chapter IV Direct Selling Activities

Article 22

When selling products to consumers, a door-to-door salesman shall comply with the following provisions:

1.

showing the certificate of door-to-door salesman and the sales contract;

2.

not entering into the abode of any consumer to sell products compulsively without the consent of the consumer, stopping promotion activities immediately and leaving the consumer's abode if the consumer requires him to do so;

3.

giving consumers detailed account of the company's system of returning goods before the bargain is struck; and

4.

providing consumers with invoices as well as the sales voucher containing such contents as the system of returning goods, the address of the local service location of the direct selling company and the telephone number, etc. issued by the direct selling company after the bargain is struck.

Article 23

A direct selling company shall clearly mark the product price on the direct selling product, and the price shall be consistent with the price of the product as showed at the service website. A door-to-door salesman shall sell direct selling products to consumers at the marked price.

Article 24

A direct selling company shall pay remuneration to its door-to-door salesmen at least on a monthly basis. The remunerations paid to any door-to-door salesman by a direct selling company shall be calculated on the basis of the income gained from selling products directly to consumers by the door-to-door salesman himself/herself, and the total remuneration (including commission, bonus, various awards and other economic benefits, and etc.) may not exceed 30% of the income gained from selling products directly to consumers by the door-to-door salesman himself/herself.

Article 25

A direct selling company shall establish and put into practice the sound system of changing and returning of goods.

Any consumer may, within 30 days as of the day of purchasing any direct selling product, upon the strength of the invoice or the sales voucher issued by the direct selling company , change or return the product to the direct selling company or its branches, or the service website at his locality or the door-to-door salesman who sells the product, on the condition that the product remains unopened. The direct selling company and its branches, the service website at his locality or the door-to-door salesman shall, within 7 days as of the day when the consumer requests for changing or returning the product, handle the change or return of the product according to the price as made out in the invoice or the sales voucher.

A door-to-door salesman shall, within 30 days as of the day of purchasing the direct selling product, upon the strength of the invoice or the sales voucher issued by the direct selling company, change or return the product to the direct selling company or its branches, or the service website at his locality, on the condition that the product remains unopened. The direct selling company and its branches, or the service website at his locality shall, within 7 days as of the day when the door-to-door salesman requests for changing or returning the product, handle the changing or returning of the product according to the price as made out in the invoice or the sales voucher.

Except for the circumstances as prescribed in the two preceding paragraphs, where a consumer or door-to-door salesman requests changing or returning any product, the direct selling company or its branches or the service website at his locality and the door-to-door salesman shall, according to the provisions of the relevant laws and regulations or the stipulations of the contract, change or return the product.

Article 26

If any dispute arises from changing or returning goods between any direct selling company and any of its door-to-door salesman or between any direct selling company or its door-to-door salesmen and any consumer, the former shall bear the burden of proof.

Article 27

A direct selling company shall bear the joint responsibility for the direct selling acts of any of its door-to-door salesmen, unless it can prove that the direct selling act of the door-to-door salesman has nothing to do with the company.

Article 28

A direct selling company shall, in accordance with the provisions of the competent commerce department of the State Council and the administrative department of industry and commerce of the State Council, establish and put into practice a sound information reporting and disclosure system.

The provisions on the contents and ways of the information reporting and disclosure of any direct selling company and the relevant requirements shall be separately prescribed by the competent commerce department of the State Council and the administrative department of industry and commerce of the State Council.

Chapter V Deposit

Article 29

A direct selling company shall open a special account in the bank designated by the competent commerce department of the State Council together with the administrative department of industry and commerce of the State Council, and put a deposit into it.

The deposit shall be RMB 20 million Yuan at the time when a direct selling company is established. After the direct selling company starts operation, the deposit shall be adjusted on a monthly basis, and the amount shall remain at 15% of its sales income from direct selling products of the previous month, but may not exceed RMB 0.1 billion Yuan at the maximum and not less than RMB 20 million Yuan at the minimum. The interest of the deposit shall be owned by the direct selling company.

Article 30

In the case of any of the following circumstances, the deposit may be used upon the decision jointly made by the competent commerce department of the State Council and the administrative department of industry and commerce of the State Council:

1.

A direct selling company fails to pay remuneration to its door-to-door salesmen without justifiable reasons, or fails to pay the money for returned goods to door-to-door salesmen and consumers;

2.

A direct selling company involves itself in such circumstances as suspension of business, merger, dissolution, transfer and bankruptcy and etc., and lacks the ability to pay remuneration to its door-to-door salesmen or to pay the refunds to door-to-door salesmen or consumers; or

3.

A direct selling company shall make compensation for any damage to consumers due to the quality of its direct selling products under the law, but it refuses to do so without justifiable reasons or lack the ability to make compensation.

Article 31

Where any deposit is used according to the provisions of Article 30 of the present Regulations, the direct selling company shall, within one month, replenish the deposit to the level as prescribed in paragraph two of Article 29 of the present Regulations.

Article 32

No direct selling company is allowed to offer the deposit as a guarantee or use it to discharge debts in violation of the present Regulations.

Article 33

Where a direct selling company no longer undertakes any direct selling business, it may withdraw the deposit from the aforesaid bank upon the strength of the credence issued by the competent commerce department of the State Council and the administrative department of industry and commerce of the State Council.

Article 34

The competent commerce department of the State Council and the administrative department of industry and commerce of the State Council shall be jointly responsible for the routine supervision on the aforesaid deposit.

The specific measures for payment and use of the deposit shall be separately formulated by the competent commerce department of the State Council and the administrative department of industry and commerce of the State Council in conjunction with the relevant departments.

Chapter VI Supervision and Administration

Article 35

The administrative department of industry and commerce shall be responsible for the routine supervision and administration on direct selling companies and door-to-door salesmen and their direct selling activities. The administrative department of industry and commerce may conduct on-site inspection by taking the following measures:

1.

conducting inspection by entering into the relevant companies;

2.

requiring the relevant enterprises to provide the relevant documents, materials and certification documents;

3.

inquiring of the parties concerned, the interested parties and other relevant personnel about the relevant issues, and requiring them to provide the relevant materials;

4.

consulting, copying, seizing and detaining the relevant materials and illegal property of the relevant enterprises that are related to direct selling activities; and

5.

checking up the certificates of direct selling trainers and the certificates of door-to-door salesmen and other certificates of the relevant personnel.

When the administrative department of industry and commerce carries out on-site inspection pursuant to the preceding provisions, there shall be no less than two inspectors who shall show lawful certificates. The implementation of seizure or detention shall be subject to the approval of the person-in-charge of the administrative department of industry and commerce at or above the county level.

Article 36

When conducting routine supervision and administration, in case the administrative department of industry and commerce discovers that the relevant enterprises commit any act suspected of violating the present Regulations, it may, upon the approval of the person-in-charge of the administrative department of industry and commerce at or above the county level, order them to suspend their business operations.

Article 37

The administrative department of industry and commerce shall set up and publicize the informants' hot-line, and accept the report and complaints on acts that violate the present Regulations, and make investigation on and handle them in a timely manner.

The administrative department of industry and commerce shall keep secret of the informants, and shall, according to the relevant provisions of the State, grant awards to those meritorious informants.

Chapter VII Legal Liabilities

Article 38

Where the relevant departments and their staff members that carry out administration and supervision on direct selling companies and door-to-door salesmen and their direct selling activities, grant license to any application that fails to comply with the conditions as prescribed in the present Regulations, or do not perform the duty of supervision and administration in line with the provisions of the present Regulations, the person-in-charge who is directly responsible and other personnel held directly liable shall be given administrative sanctions according to law. If a crime is constituted, they shall be investigated for criminal liabilities according to law. The license granted to any application that does not comply with the conditions as prescribed in the present Regulations shall be revoked by the relevant department that has made the decision on granting the license.

Article 39

Where a direct selling company violates the provisions of Articles 9 and 10 of the present Regulations by undertaking direct selling activity without approval, it shall be ordered by the administrative department of industry and commerce to make corrections, and shall be subject to the confiscation of its direct selling products and illegal sales income as well as a fine of not less than 50,000 Yuan but not more than 300,000 Yuan. If the circumstances are serious, it shall be imposed upon a fine of not less than 300,000 but not more than 500,000 Yuan, and shall be banned according to law. If a crime is constituted, it shall be investigated for criminal liabilities according to law.

Article 40

Where an applicant has obtained the licenses as established in Articles 9 and 10 of the present Regulations by cheating, bribery or any other foul means, the administrative department of industry and commerce shall confiscate its direct selling products and illegal sales revenue, and impose upon the applicant a fine of not less than 50,000 Yuan but not more than 300,000Yuan. And the competent commerce department of the State Council shall revoke its corresponding licenses, and the said applicant shall be prohibited from filing an application again. If the circumstances are serious, it shall be imposed a fine of not less than 300,000 Yuan but not more than 500,000 Yuan, and shall be banned according to law. If a crime is constituted, it shall be investigated for criminal liabilities according to law.

Article 41

Where a direct selling company violates the provisions of Article 11 of the present Regulations, the administrative department of industry and commerce shall order it to make corrections, and impose upon it a fine of not less than 30,000 Yuan but not more than 300,000 Yuan. Where a direct selling company no longer satisfies the conditions for licensing of direct selling, its direct selling license shall be revoked by the competent commerce department of the State Council.

Article 42

Where a direct selling company violates regulations by undertaking direct selling business beyond the scope of direct selling products, the administrative department of industry and commerce shall order it to make corrections, confiscate its direct selling products and illegal sales revenue, and impose upon it a fine of not less than 50,000 Yuan but not more than 300,000 Yuan. If the circumstances are serious, it shall be imposed a fine of not less than 300,000 Yuan but not more than 500,000 Yuan. And the administrative department of industry and commerce shall revoke the business license of the branch of any direct selling company which has illegal operation acts, till the direct selling license of the direct selling company is revoked by the competent commerce department of the State Council.

Article 43

Where a direct selling company or any of its door-to-door salesmen violates the provisions of the present Regulations by committing fraudulent, misleading and other drumbeating and sales promotion acts, the direct selling company shall be imposed a fine of not less than 30,000 Yuan but not more than 100,000 Yuan by the administrative department of industry and commerce; if the circumstances are serious, it shall be imposed a fine of not less than 100,000 Yuan but not more than 300,000 Yuan. And the administrative department of industry and commerce shall revoke the business license of the branch of any direct selling company which has illegal operation acts, till the direct selling license of the direct selling company is revoked by the competent commerce department of the State Council. The door-to-door salesman shall be imposed a fine of less than 50,000 Yuan by the administrative department of industry and commerce; if the circumstances are serious, the direct selling company shall be ordered to revoke the qualification of the said door-to-door salesman.

Article 44

Where a direct selling company or any of its branches recruits door-to-door salesmen in violation of the present Regulations, it shall be ordered to make corrections by the administrative department of industry and commerce, and imposed a fine of not less than 30,000 Yuan but not more than 100,000 Yuan. If the circumstances are serious, it shall be imposed a fine of not less than 100,000 Yuan but not more than 300,000 Yuan. And the administrative department of industry and commerce shall revoke the business license of the branch of the direct selling company that has illegal operation acts, till the direct selling license of the direct selling company is revoked by the competent commerce department of the State Council.

Article 45

Anyone, who violates the provisions of the present Regulations and undertakes direct selling activity without obtaining the certificate of door-to-door salesman, shall be ordered by the administrative department of industry and commerce to make corrections, and shall be subject to the confiscation of its direct selling products and illegal sales income as well as a fine of less than 20,000 Yuan. If the circumstances are serious, he shall be imposed a fine of not less than 20,000 Yuan but not more than 200,000 Yuan.

Article 46

Any direct selling company that carries out the vocational training of door-to-door salesmen in violation of the provisions of the present Regulations shall be ordered by the administrative department of industry and commerce to make corrections, and shall be subject to the confiscation of its illegal gains as well as a fine of not less than 30,000 Yuan but not more than 100,000 Yuan. If the circumstances are serious, it shall be imposed a fine of not less than 100,000 Yuan but not more than 300,000 Yuan. And the administrative department of industry and commerce shall revoke the business license of the branch of the direct selling company that has illegal business acts till the direct selling license of the direct selling company is revoked by the competent commerce department of the State Council. The teaching staff members shall be imposed a fine of less than 50,000 Yuan, and if they are the direct selling trainers, the direct selling company shall be ordered to revoke their qualifications as a direct selling trainer.

If an entity or individual outside a direct selling company organizes the vocational training of door-to-door salesmen, the administrative department of industry and commerce shall order it/him to make corrections, confiscate its/his illegal gains, and impose upon it/him a fine of not less than 20,000 Yuan but not more than 200,000 Yuan.

Article 47

Where a door-to-door salesman violates the provisions of Article 22 of the present Regulations, the administrative department of industry and commerce shall confiscate his/her illegal sales income, and impose upon him/her a fine of less than 50,000 Yuan. If the circumstances are serious, the direct selling company concerned shall be ordered to revoke his/her qualification as a door-to-door salesman, and shall be imposed upon a fine of not less than 10,000 Yuan but not more than 100,000 Yuan.

Article 48

Any direct selling company that violates the provisions of Article 23 of the present Regulations shall be punished in accordance with the relevant provisions of the price law.

Article 49

Where a direct selling company violates the provisions of Articles 24 and 25 of the present Regulations, the administrative department of industry and commerce shall order it to make corrections and impose upon it a fine of not less than 50,000 Yuan but not more than 300,000 Yuan. If the circumstances are serious, it shall be imposed a fine of not less than 300,000 but not more than 500,000 Yuan. And the administrative department of industry and commerce shall revoke the business license of the branch of the direct selling company that has illegal business acts, till the direct selling license of the direct selling company is revoked by the competent department of commerce of the State Council.

Article 50

Where a direct selling company fails to report and disclose information according to the relevant provisions, the administrative department of industry and commerce shall order it to make corrections within a prescribed time limit, and impose upon it a fine of less than 100,000 Yuan. If the circumstances are serious, the administrative department of industry and commerce shall revoke the business license of the branch of the direct selling company that has illegal business acts, till the direct selling license of the direct selling company is revoked by the competent department of commerce of the State Council.

Article 51

Where a direct selling company violates the relevant provisions of Chapter V of the present Regulations, the administrative department of industry and commerce shall order it to make corrections within a prescribed time limit, and impose upon it a fine of less than 100,000 Yuan. In case it refuses to make corrections, it shall be imposed upon a fine of not less than 100,000 Yuan but not more than 300,000 Yuan, and its direct selling license shall be revoked by the competent commerce department of the State Council.

Article 52

In case any illegal act violates the Regulations on Prohibiting Pyramid Selling as well as the present Regulations, it shall be punished in accordance with the relevant provisions of the Regulations on Prohibiting Pyramid Selling.

Chapter VIII Supplementary Provisions

Article 53

If a direct selling company plans to establish a direct selling company association and other social organizations, it shall seek approval from the competent commerce department of the State Council and shall, upon the strength of the approval document, apply for registration according to law.

Article 54

The relevant provisions on foreign investors of the present Regulations shall be complied with, when the investors of Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan region invest in establishing direct selling companies within China and undertakes direct selling activities.

Article 55

The present Regulations shall go into effect as of December 1st, 2005.