Direct Selling Regulations Approved by China’s State Council, Two Changes Made in Favor of the Industry

By Michael Chen

The new Chinese regulations on direct selling no longer set a minimum number of corporate owned or franchised stores within a territory and registered MLM companies do not have to be classified as a “Manufacturer.”

On August 10, 2005, Prime Minister Mr. Wen presided and conducted the State Council Meeting to discuss and approve in principle a Draft of Direst Selling Regulations and Draft of Anti-Pyramid Regulations.

After the approval by the State Council, the Ministry of Commerce and the State Administration of Industry and Commerce will make some technical adjustments. The regulations will be finalized and published in about a month.

According to some unverified information, the approved new regulations contain two important changes: (1) MLM Companies are no longer required to have a minimum number of corporate owned or franchised stores within certain territory. (2) When the MLM companies register themselves in China, they do not have to qualify themselves as a “Manufacturer,” which means that they do not have to own a production facility within China.

However, as in the previous drafts, the approved version still sets the minimum register capital at 10 Million USD, the security deposit at 2.5 Million USD, and the maximum percentage for bonuses may not exceed 30% of the product’s retail price.

While many questions remain about the interpretation of these new regulations, the government’s policy on this industry is gradually becoming clearer.

Prepared by Michael Chen, esq.
Kirton & McConkie P.C.
mchen@kmclaw.com
801-415-5168