Multi-Level Marketing Is Prohibited In China
In a recent article by Stephen O’Regan at the China Briefing, it was made clear where China stands on Multi-Level Marketing.
From our experience, a large number of foreign companies have expressed interest in entering into the Chinese market through this Multi-Level Marketing structure. However, they are going to be disappointed. In 2005, the Chinese Government enacted a law called “Regulation of Direct Sales and Regulation on Prohibition of Chuanxiao” (where Chuanxiao stand for MLM). With this regulation China makes it clear that while Direct Sales is permitted in the mainland, Multi-Level Marketing is not.
What I found very interesting was the limitations that China places on direct selling companies. These limitations are an attempt at keeping direct selling companies from functioning as MLM companies.
Here are the limitations:
- The company must have a business license.
- Only one level of commission can be paid to sellers.
- The sellers have to follow an advanced training course offered by the company and by the end of the course they have to get a license and the direct sellers must wear a badge to prove their status.
- A seller’s commission it set at 30% of the sales, including bonuses, commission, and other benefits.
Here is the reason China gives for prohibiting Multi-Level Marketing:
“Because of the multi-level payment structure, the organizers and the members at top level obtain interest illegally and, according to the Chinese Government, disturb normal economic order, and affect social stability.”
Many multi-level marketing companies have been making a fortune in China. How is this possible with China’s strong stand against these types of companies?
MLM is legal in Taiwan and Hong Kong. Sellers from these regions use Taiwanese or Hong Kong addresses and banks to become sales reps in these jurisdictions while at all times living and working in China. Nu Skin was recently under investigation for this type of activity.
In the United States it is confusing what is allowed and what is illegal when it comes to direct selling/MLM. This confusion is allowing product-based pyramid schemes to take advantage of many people in this country. The time has come for the FTC to do their job and create clear guidelines that companies follow. China can do it and we can too.