China Bans Direct Marketing Firms

In a move it said was needed to prevent illegal pyramid schemes, China has issued an immediate ban on direct marketing that could shut off a multimillion-dollar market for Amway and other direct marketing giants. Direct marketing companies of all sizes have become hugely popular in China in the 1990s. The sudden ban showed how concerned the government has become about the system of independent distributor networks with their door-to-door sales and motivational meetings.

Direct marketing companies tend to have closed organisations and covert business dealings, the state-run Xinhua news agency said in a report Tuesday night announcing the ban. Criminals have used direct marketing to spread heretical religion, start secret societies, swindle customers, seek exorbitant profits and sell smuggled and fake goods, the report said.

 

All this seriously harms the rights of consumers and disrupts the normal economic order, it added. The spread of pyramid scams appeared to be a key reason behind the ban. Through various pyramid schemes, a number of unscrupulous people have engaged in a series of illegal activities in recent years, behaving badly, getting involved in underworld gangs, and preying on superstitions, Xinhua said.

Shutting down direct marketing would be a major undertaking, involving law enforcement and government agencies at all levels, but it had to be done because social stability is at stake, the report said.

The report said all direct marketing companies including those registered for legal operation in China had to stop operations immediately. It did not mention any company by name.

Amway, headquartered in Michigan, recently invested $100 million in eight distribution outlets and a factory in Guangzhou, in south Chinas Guangdong province, to make dish soap, see spray window cleaner and other products for sale in China. Herbert Ho, Amways director for China, said his company understood the governments concerns over illegal pyramid schemes, and was working to modify its distribution system.

The company plans to keep its 40 product service centers in China and to incorporate active distributors into its service and training team, he said in a statement. At this time, it is not appropriate to comment in detail on these modifications, Ho said.

What has not changed is Amways strong commitment to China and to our distributors, trainers, customers and employees, he added. Amway, short for American Way, started operations in China three years ago. Avon Products Inc also has a large presence in China.

The government called on all commercial regulatory organisations to strictly investigate reports of violations of the ban.

The governments news agency said China was open to abuses of direct marketing because its consumers did not have a mature mentality, its regulatory system was backward and the level of development of its market was low.