Regulation on Direct Selling Administration in China

• Area of Law： Industrial and Commercial Management
• Pkulaw Comments：Decision of the State Council to Temporarily Adjust the Provisions of Relevant Administrative Regulations, Documents of the State Council, and Departmental Rules Approved by the State Council in Pilot Free Trade Zones
• Level of Authority： Administrative Regulations
• Date issued：03-01-2017
• Effective Date：03-01-2017
• Status： Effective
• Issuing Authority： State Council

Regulation on Direct Selling Administration
(Promulgated by Order No.433 of the State Council on August 23,2005; and amended in accordance with the Decision of the State Council to Amend and Repeal Certain Administrative Regulations on March 1, 2017)
Chapter I General Provisions
Article 1 The present Regulation is formulated for the purpose of regulating direct selling acts, strengthening supervision over direct selling activity, and preventing fraud, as well as protecting the lawful rights and interests of consumers and public interests.
Article 2 The present Regulation shall be followed for undertaking direct selling activity within the territory of the People's Republic of China.
The scope of direct selling products shall be determined and publicized by the competent department of commerce of the State Council together with the administrative department of industry and commerce of the State Council according to the development of the direct selling sector and consumers' demand.
Article 3 The direct selling, as mentioned in the present Regulation, is a type of business model, in which direct selling companies recruit sales promoters to sell products directly to end consumers (hereinafter referred to as consumers)outside the companies' fixed outlets
The direct selling companies, as mentioned in the present Regulation, shall refer to the companies which sell products by way of direct selling upon approval according to the provisions of the present Regulation.
The sales promoters, as mentioned in the present Regulation, shall refer to any personnel who sell products directly to consumers outside the fixed outlets.
Article 4 Any company that is established within the territory of the People's Republic of China (hereinafter referred to as the company) may, according to the provisions of the present Regulation, apply for becoming 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 trading right and distribution right according to law.
Article 5 No direct selling company or its sales promoter may have any fraudulent or misleading acts and other drumbeating and sales promotion acts when undertaking direct selling activities.
Article 6 The competent department of commerce of the State Council and the administrative department of industry and commerce of the State Council shall, according to the division of their own functions and the provisions of the present Regulation, be responsible for conducting supervision and administration on direct selling companies and sales promoters and their direct selling activities.
Chapter II Establishment and Alteration of Direct Selling Companies and Their Branches
Article 7 Anyone applying for becoming a direct selling company shall meet the following requirements:
1. The investor shall have sound business credit, and has no records of serious illegal operation during the past five years before filing the application; a foreign investor shall also have undertaken direct selling business for at least three years outside China;
2. The paid-in registered capital is no less than RMB 80 million Yuan;
3. The deposit has been paid in full amount in the designated bank according to the provisions of the present Regulation; and
4. The system of information reporting and disclosure as required has been established.
Article 8 Anyone applying for becoming a direct selling company shall fill in the application form and submit the following application documents and materials:
1. The certificate documents complying with the conditions as prescribed in Article 7 of the present Regulation;
2. Articles of association of the company, for Sino-foreign joint venture or cooperative companies, the contract of the joint venture or cooperative company shall also be provided;
3. The report on market plan, including the scheme for service networks in the area where direct selling business is undertaken as recognized by the people's governments at or above the county level, which is drafted according to the provisions of Article 10 of the present Regulation;
4. Product specifications complying with the national standards;
5. Model text of the sales contract to be signed with the sales promoters;
6. Capital verification report issued by an accountant firm; and
7. Agreement concluded by the company with the designated bank for using the deposit according to the present Regulation.
Article 9 An applicant shall file an application with the competent department of commerce of the State Council through the competent department of commerce at the province, autonomous region, and municipality directly under the Central Government at its locality. The said department shall, within 7 days from the day of receiving the application documents and materials, submit the application documents and materials to the competent department of commerce of the State Council. The competent department of commerce of the State Council shall, within 90 days from the day of receiving all the application documents and materials, and upon soliciting the opinions of the administrative department of industry and commerce of the State Council, make a decision on whether to approve it or not. If an approval is granted, the competent department of commerce of the State Council shall issue the direct selling license.
An applicant shall, upon the strength of the direct selling license issued by the competent department of commerce of the State Council, apply for alteration registration to the administrative department of industry and commerce according to law.
The competent department of commerce of the State Council shall, when making examination on and issuing the direct selling license, take into consideration such factors as national security, public interests, and the development of the direct selling sector, and etc..
Article 10 A direct selling company shall, when undertaking direct selling business, establish branches(hereinafter referred to as branches) responsible for the direct selling business within the administrative regions of the provinces, autonomous regions, and municipalities directly under the Central Government where it plans to undertake direct selling business.
A direct selling company shall, within the area where it undertakes direct selling business, establish service networks which may facilitate and satisfy consumers and sales promoters to know about the price of the products and the returning and changing of goods and for the company to provide other services. The establishment of such service networks shall meet the requirements of the local people's governments at or above the county level.
A direct selling company shall, when applying for establishing branches, provide the certificate documents and materials complying with the provisions of the preceding paragraph, and shall file an application in light of the procedures as prescribed in paragraph one of Article 9 of the present Regulation. After the application is approved, the company shall go through registration at the administrative department of industry and commerce according to law.
Article 11 A direct selling enterprise that has any major modification involving any of the documents and materials as listed in items (1), (2), (3), (5), (6) and (7) of Article 8 of the Regulation shall, in accordance with the procedures as prescribed in paragraph 1 of Article 9 of this Regulation, report to the commerce department of the State Council for approval.
Article 12 The competent department of commerce of the State Council shall publicize the name lists of the direct selling companies and their branches on the government website and update them in time.
Chapter III Recruiting and Training of Sales Promoters
Article 13 A direct selling company and its branches may recruit sales promoters. No entity or individual outside any direct selling company and its branches may recruit any sales promoter.
The lawful selling activities of any sales promoter shall not be subject to investigation and punishment by the reason of operation without license.
Article 14 No direct selling company or any of its branches may release any advertisements with the drumbeating of remunerations for sales promoters, nor may it have the fee-paying or commodities purchase served as the conditions for becoming a sales promoter.
Article 15 No direct selling company or any of its branches may recruit the following personnel as sales promoters:
1. Person who has not reached the age of 18;
2. Person with no capacity for civil conduct or with limited capacity for civil conduct;
3. Full-time students at school;
4. Teachers, medical personnel, civil servants and enlisted army men;
5. Formal employees of the direct selling company;
6. Overseas personnel; and
7. Personnel prohibited from undertaking part-time job as prescribed by any law or administrative regulation.
Article 16 A direct selling company or any of its branches shall sign sales contract with any sales promoter it recruits, and shall ensure that the sales promoter shall carry out direct selling business only in the area of the province, autonomous region, and municipality directly under the Central Government where one of its branches has established service networks. Any person who fails to sign sales contract with a direct selling company or any of its branches shall not carry out direct sales business by any way.
Article 17 A sales promoter may rescind a sales contract at any time within 60 days from the day of signing it; after the 60 days, a sales promoter shall notify the direct selling company 15 days before rescinding the sales contract.
Article 18 A direct selling company shall make vocational training and examination on any sales promoter it recruits, and issue the certificate of sales promoter after the sales promoter has passed the examination. No one may undertake direct selling business without obtaining the certificate of sales promoter.
No direct selling company may charge any fees for making vocational training and examination on sales promoters.
No entity or individual outside a direct selling company may organize vocational training on sales promoters in any name.
Article 19 The teaching staff who make vocational training on sales promoters shall be the formal employees of the direct selling companies, and shall comply with the following conditions:
1. Working in the companies for more than one year;
2. Having graduate or post-graduate education of higher education and the relevant professional knowledge of law and marketing;
3. Having no records of criminal punishment for intentional crimes; and
4. Having no records of major illegal operation.
A direct selling company shall issue the certificate of direct selling trainer to the teaching staff complying with the provisions in the preceding paragraph, and shall report the name lists of the personnel who have obtained the certificate of direct selling trainer to the competent department of commerce of the State Council for archival filing. The said department shall publicize the name lists of the personnel who have obtained the certificate of direct selling trainer on the government website.
No foreigner may undertake vocational training on sales promoters.
Article 20 The certificate of sales promoter and the certificate of direct selling trainer issued by a direct selling company shall be printed according to the format as prescribed by the competent department of commerce of the State Council.
Article 21 A direct selling company shall be responsible for the legitimacy of the vocational training on sales promoters, the training order and the security 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 on sales promoters.
The concrete measures for the administration of vocational training on sales promoters shall be formulated separately by the competent department of commerce of the State Council, the administrative department of industry and commerce of the State Council together with the relevant departments.
Chapter IV Direct Selling Activities
Article 22 A sales promoter shall abide by the following provisions when selling products to consumers:
1. Showing the certificate of sales promoter and the sales contract;
2. Not entering into the residence of any consumer to make hard sell on products without the consent of the consumer, if the consumer requires him to stop the sales activity, he shall stop it immediately and leave the consumer's residence;
3. Making detailed introduction to consumers on the company's system of returning goods before the bargain is struck; and
4. Providing invoices to consumers and the sales credence containing such contents as the system of returning goods, the address of the local service networks of the direct selling company and the telephone number, and etc. issued by the direct selling company after the bargain is struck.
Article 23 A direct selling company shall mark the product price on any direct selling product, and the price shall be consistent with the price of the product as showed at the service networks. A sales promoter shall sell products to consumers according to the marked price.
Article 24 A direct selling company shall pay remunerations to its sales promoters by month at least. The remunerations paid to any sales promoter by a direct selling company shall be calculated on the basis of the income gained from directly selling products to consumers by the sales promoter himself/herself, and the total remunerations (including commission, bonus, various awards and other economic benefits, and etc.) shall not exceed 30% of the income gained from directly selling products to consumers by the sales promoter himself/herself.
Article 25 A direct selling company shall establish and implement sound system of changing goods and returning goods.
Any consumer may, within 30 days from the day of purchasing any direct selling product, and under the condition that the product is not opened, change or return the product to the direct selling company or its branches, the service networks at his locality or the sales promoter that sells the product upon the strength of the invoice or the sales credence issued by the direct selling company. The direct selling company and its branches, the service networks at his locality and the sales promoter shall, within 7 days from the day when the consumer requests for changing or returning the product, handle the change or return of the product according the price as clarified in the invoice or the sales credence.
A sales promoter shall, within 30 days from the day of purchasing any direct selling product, and under the condition that the product is not opened, change or return the product to the direct selling company or its branches, or the service networks at his locality upon the strength of the invoice or the sales credence issued by the direct selling company. The direct selling company and its branches, or the service networks at his locality shall, within 7 days from the day when the sales promoter requests for changing or returning the product, handle the change or return of the product according to the price specified in the invoice or the sales credence.
Except the circumstances as prescribed in the preceding two paragraphs, if any consumer or sales promoter requests changing or returning any product, the direct selling company or its branches, the service networks at its locality or the sales promoter shall, according to the provisions of the relevant laws and regulations or the stipulations of the contract, handle the change or return of the product.
Article 26 In case any dispute arises between any direct selling company and any of its sales promoter or between any direct selling company or its sales promoters and any consumer due to the change or return of goods, the burden of proof shall be borne by the former.
Article 27 A direct selling company shall be responsible jointly and severally for the direct selling acts of any of its sales promoters, unless it can prove that the direct selling act of any sales promoter has nothing to do with the company.
Article 28 A direct selling company shall, according to the provisions of the competent department of commerce of the State Council and the administrative department of industry and commerce of the State Council, establish and implement a perfect information reporting and disclosure system.
The contents, ways of the information reporting and disclosure of any direct selling company and the relevant requirements shall be prescribed separately by the competent department of commerce 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 department of commerce of the State Council and the administrative department of industry and commerce of the State Council together to deposit 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 monthly, and the amount shall remain at 15% of its sales income from direct selling products in the previous month, but shall not exceed RMB 0.1 billion Yuan at the maximum, and shall be no less than RMB 20 million Yuan at the minimum. The interests of the deposit shall be owned by the direct selling company.
Article 30 In case any of the following circumstances occurs, upon the common decision of the competent department of commerce of the State Council and the administrative department of industry and commerce of the State Council, the deposit may be used:
1. A direct selling company fails to pay remunerations to its sales promoters without justifiable reasons, or fails to pay the money for returned goods to sales promoters and consumers;
2. A direct selling company occurs such circumstances as stopping operation, merger, dissolution, transfer and bankruptcy and etc., and is unable to pay remunerations to sales promoters or is unable to pay money for returned goods to sales promoters or consumers; or
3. A direct selling company causes any damage to consumers due to the quality of the direct selling products and should make compensation according to law, but the company refuses to make compensation without justifiable reasons or is unable to compensate.
Article 31 Where any deposit is used according to the provisions of Article 30 of the present Regulation, the direct selling company shall make up in full amount the deposit to the level as prescribed in paragraph two of Article 29 of the present Regulation within one month.
Article 32 No direct selling company may make guaranty with the deposit or use it to pay off debts in violation of the present Regulation.
Article 33 In case any direct selling company no longer undertakes any direct selling business, it may, upon the strength of the credence issued by the competent department of commerce of the State Council and the administrative department of industry and commerce of the State Council, withdraw the deposit from the bank.
Article 34 The competent department of commerce of the State Council and the administrative department of industry and commerce of the State Council shall be jointly responsible for the routine supervision of the deposit.
The concrete measures for depositing and paying and using the deposit shall be formulated separately by the competent department of commerce of the State Council and the administrative department of industry and commerce of the State Council together 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 sales promoters and their direct selling activities. The administrative department of industry and commerce may make on-site inspections by taking the following measures:
1. Making inspection by entering into the relevant enterprises;
2. Requiring the relevant enterprises to provide the relevant documents, materials and certificate 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, sealing up and detaining the relevant materials and illegal property of the relevant enterprises in relation to direct selling activities; and
5. Inspecting the certificate of direct selling trainer and the certificate of sales promoter and other certificates of the relevant personnel.
When conducting on-site inspections according to the preceding provisions, the inspectors of the administrative department of industry and commerce shall be no less than two persons, and shall show lawful certificate. The implementation of seizure or distraint 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 the administrative department of industry and commerce conducts routine supervision and administration, and discovers that the relevant enterprises have any act being suspected of violating the present Regulation, 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 the relevant management activities.
Article 37 The administrative department of industry and commerce shall set up and announce the offense report telephone, and accept the report and complaints on acts in violation of the present Regulation, and make investigation and handling in time.
The administrative department of industry and commerce shall keep secrets for the person making the report; and shall give awards to those who have made good contribution in reporting offenses according to the relevant state provisions.
Chapter VII Legal Liabilities
Article 38 In case the relevant departments and their staff members that conduct supervision and administration on direct selling companies and sales promoters and their direct selling activities grant license to any application not complying with the conditions as prescribed in the present Regulation or do not perform supervision and administration functions in light of the provisions of the present Regulation, the person-in-charge who is directly responsible and other personnel directly liable shall be given administrative punishments according to law. If a crime is constituted, they shall be subject to criminal liabilities according to law. The license on any application not complying with the conditions as prescribed in the present Regulation shall be revoked by the relevant department that makes the decision on the license.
Article 39 Any direct selling company that violates the provisions of Articles 9 and 10 of the present Regulation and undertakes direct selling activity without approval shall be ordered by the administrative department of industry and commerce to make corrections, be confiscated of the direct selling products and the illegal sales income, and be imposed upon a fine ranging from RMB 50,000 to 300,000 Yuan. If the circumstance is serious, it shall be imposed upon a fine ranging from RMB 300,000 to 500,000 Yuan, and shall be banned according to law. If a crime is constituted, it shall be subject to criminal liabilities according to law.
Article 40 In case any applicant obtains the licenses as established in Articles 9 and 10 of the present Regulation by cheating, bribery or other means, the administrative department of industry and commerce shall confiscate the direct selling products and the illegal sales income, and impose upon the applicant a fine ranging from RMB 50,000 to 300,000 Yuan, and the competent department of commerce of the State Council shall revoke its corresponding license, and the applicant shall be prohibited from filing an application again. If the circumstance is serious, it shall be imposed upon a fine ranging from RMB 300,000 to 500,000 Yuan, and shall be banned according to law. If a crime is constituted, it shall be subject to criminal liabilities according to law.
Article 41 In case any direct selling company violates the provisions of Article 11 of the present Regulation, the administrative department of industry and commerce shall order it to correct, and impose upon it a fine ranging from RMB 30,000 to 300,000 Yuan. If any direct selling company no longer complies with the conditions on licensing of direct selling, the competent department of commerce of the State Council shall revoke its direct selling license.
Article 42 In case any direct selling company violates regulations, and undertakes direct selling business by exceeding the scope of direct selling products, the administrative department of industry and commerce shall order it to correct, confiscate the direct selling products and the illegal sales income, and impose upon it a fine ranging from RMB 50,000 to 300,000 Yuan. If the circumstance is serious, it shall be given a fine ranging from RMB 300,000 to 500,000 Yuan, and the competent department of commerce of the State Council shall suspend the business license of the branch of any direct selling company which has illegal operation acts, or the competent department of commerce of the State Council may even suspend the direct selling license of the direct selling company.
Article 43 In case any direct selling company or any of its sales promoters violates the provisions of the present Regulation, and has fraudulent, misleading and other drumbeating and sales promotion acts, the direct selling company shall be imposed upon a fine ranging from RMB 30,000 to 100,000 Yuan by the administrative department of industry and commerce; if the circumstance is serious, it shall be given a fine ranging from RMB 100,000 to 300,000 Yuan, and the administrative department of industry and commerce shall suspend the business license of the branch of any direct selling company which has illegal operation acts, or the competent department of commerce of the State Council may even suspend the direct selling license of the direct selling company. The sales promoters shall be given a fine of less than RMB 50,000 Yuan by the administrative department of industry and commerce; if the circumstance is serious, it shall order the direct selling company to revoke his/her qualification of sales promoter.
Article 44 In case any direct selling company or any of its branches recruits sales promoters in violation of the present Regulation, the administrative department of industry and commerce shall order it to correct, and impose upon it a fine ranging from RMB 30,000 to 100,000 Yuan. If the circumstance is serious, it shall be imposed upon a fine ranging from RMB 100,000 to 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 or the competent department of commerce of the State Council may even revoke the direct selling license of the direct selling company.
Article 45 In case anyone violates the provisions of the present Regulation and undertakes direct selling activity without obtaining the certificate of sales promoter, the administrative department of industry and commerce shall order him/her to correct, confiscate the direct selling products and the illegal sales income, and may impose upon him/her a fine of less than RMB 20,000 Yuan. If the circumstance is serious, he shall be imposed upon a fine ranging from RMB 20,000 to 200,000 Yuan.
Article 46 In case any direct selling company makes vocational training on its sales promoters in violation of the provisions of the present Regulation, the administrative department of industry and commerce shall order it to correct, confiscate the illegal gains, and impose upon it a fine ranging from RMB 30,000 to 100,000 Yuan. If the circumstance is serious, it shall be imposed upon a fine ranging from RMB 100,000 to 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 or the competent department of commerce of the State Council shall even revoke the direct selling license of the direct selling company; and the teaching staff members shall be imposed a fine of less than RMB 50,000 Yuan, if they are the direct selling trainers, and the direct selling company shall be ordered to revoke their qualifications of direct selling trainer.
In case any entity or individual outside a direct selling company organizes vocational training on sales promoters, the administrative department of industry and commerce shall order it/him to correct, confiscate its/his illegal gains, and impose upon it/him a fine ranging from RMB 20,000 to 200,000 Yuan.
Article 47 In case any sales promoter violates the provisions of Article 22 of the present Regulation, the administrative department of industry and commerce shall confiscate his/her illegal sales income, and impose upon him/her a fine of less than RMB 50,000 Yuan. If the circumstance is serious, the direct selling company shall be ordered to revoke his/her qualification of sales promoter, and shall be imposed upon a fine ranging from RMB 10,000 to 100,000 Yuan.
Article 48 Any direct selling company that violates the provisions of Article 23 of the present Regulation shall be punished according to the relevant provisions of the price law.
Article 49 In case any direct selling company violates the provisions of Articles 24 and 25 of the present Regulation, the administrative department of industry and commerce shall order it to correct and impose upon it a fine ranging from RMB 50,000 to 300,000 Yuan. If the circumstance is serious, it shall be imposed upon a fine ranging from RMB 300,000 to 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 or the competent department of commerce of the State Council may even revoke the direct selling license of the direct selling company.
Article 50 In case any direct selling company fails to make information reporting and disclosure in light of the relevant provisions, the administrative department of industry and commerce shall order it to correct within a prescribed time limit, and impose upon it a fine of less than RMB 100,000 Yuan. If the circumstance is 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 or the competent department of commerce of the State Council may even revoke the direct selling license of the direct selling company.
Article 51 In case any direct selling company violates the relevant provisions of Chapter V of the present Regulation, the administrative department of industry and commerce shall order it to correct within a prescribed time limit, and impose upon it a fine of less than RMB 100,000 Yuan. If it refuses to correct, it shall be imposed upon a fine ranging from RMB 100,000 to 300,000 Yuan, and the competent department of commerce of the State Council shall revoke its direct selling license.
Article 52 In case any illegal act in violation of the present Regulation also violates the Regulation on Prohibiting Pyramid Selling at the same time, it shall be subject to the punishment according to the relevant provisions of the Regulation on Prohibiting Pyramid Selling.
Chapter VIII Supplementary Provisions
Article 53 In case any direct selling company plans to establish direct selling companies association and other social organizations, it shall be subject to the approval of the competent department of commerce of the State Council, and shall apply for registration according to law on the basis of the Document of Approval.
Article 54 The relevant provisions on foreign investors of the present Regulation shall be followed when the investors of Hong Kong Special Administrative Region, Macao Special Administrative Region, and Taiwan region invest in establishing direct selling companies and carry out direct selling activities within China.
Article 55 The present Regulation shall become effective as of December 1st, 2005.