Laws of the People's Republic of China

The Ministry of Foreign Trade and Economic Cooperation, the State Administration for Industry and Commerce, the State Economic and Trade Commission

Provisions of the State Administration for Industry and Commerce, the Ministry of Foreign Trade and Economic Cooperation, and the State Economic and Trade Commission on the Relevant Issues Concerning the Execution of the "Circular on the Relevant Issues for Pyramid Selling Enterprises with Foreign Investment to Transform their Selling Methods"

GongShangGongZi [2002] No.31

February 4, 2002

The administrative bureaus for industry and commerce, the commissions of foreign trade and economic cooperation and the economic and trade commissions (departments) of all provinces, autonomous regions and municipalities directly under the Central Government:

In order to execute the requirements in the "Circular of the General Office of the State Council on Carrying out the Special Punishment Action of Severely Striking Pyramid Selling" (GuoBanFa [2001] No. 80), strengthen the supervision and administration of the enterprises with foreign investment which engaged in the pyramid selling business activities but are approved to transform their selling methods (hereinafter referred to as the transforming enterprises), the relevant issues concerning the execution of the "Circular on the Relevant Issues for Pyramid Selling Enterprises with foreign investment to Transform Their Selling Methods" (ZiFa [1998] No.455 of the MOFTEC) are hereby stipulated as follows:

I.

The transforming enterprises must strictly abide by the provisions in the "Circular of the State Council on Prohibiting Pyramid Selling Business Activities" (GuoFa [1998] No.10) and the "Circular of the General Office of the State Council on Transmitting the Opinions of the State Administration for Industry and Commerce and Other Departments on Severely Striking the Illegal Business Activities Such as Pyramid Selling and Covert Pyramid Selling, etc." (GuoBanFa [2000] No.55) as well as the "Circular on the Relevant Issues for Pyramid Selling Enterprises with foreign investment to Transform Their Selling Methods" (ZiFa [1998] No.455 of the MOFTEC), and shall not engage in the pyramid selling or covert pyramid selling activities in any form.

II.

A transforming enterprise shall not organize the employed salesmen into a network in the name of a department, group or team, etc. to engage in marketing activities.

III.

A transforming enterprise shall calculate the remuneration of each employed salesman only on the basis of the amount of the products he has directly sold to the final consumers, and shall not calculate any remuneration for the salesmen by reason of recommendation for accession or else. The sales managers of a transforming enterprise must be formal employees of the enterprise.

IV.

A transforming enterprise must not employ salesmen to sell its products until it has established stores within the jurisdiction of the region or city (also municipality directly under the Central Government, district or county) where its branch, which is approved to be established and to employ salesmen, is located.

A transforming enterprise's branch at the provincial level which was approved to be established and to employ salesmen, shall establish stores in the regions and cities within the province (autonomous region, municipality directly under the Central Government) where it carries out its selling activities, and may not employ salesmen to engage in the selling activities until it has been approved and registered by the administrative organ for industry and commerce.

V.

A transforming enterprise shall conclude a contract with each employed salesman, and the contract shall state the salesman and the store to which he belongs. Each salesman is only allowed to engage in the selling activities within the jurisdiction of the region or city where his store is located, instead of engaging in the selling activities in different regions.

VI.

A transforming enterprise shall not employ any State civil servant, active serviceman, regular full-time student or any other person prohibited by laws or regulations from doing concurrent business to engage in the selling activities.

A salesman employed by a transforming enterprise shall have the identification certificate or temporary residential certificate that indicates he is at the locality of the store.

VII.

A transforming enterprise shall ensure that the consumers are able to buy from its stores all the products it has produced, and shall not stipulate directly or in a disguised form that part of the products can only be bought through the salesmen.

VIII.

A transforming enterprise shall not set forth the premise to employ salesmen by selling them certain documents or in any other name, nor shall it force any salesman to purchase such documents. A transforming enterprise shall neither demand the salesmen to buy up its products it supplies by force, implication or inducement, etc., nor demand the salesmen in a disguised form to buy up its products it supplies in the name of paying the training expenses, entry fee, suretyship bond or guaranty deposit, etc..

IX.

A salesman shall, when selling products to consumers, show the certificate indicating the transforming enterprise to which he belongs and the store in which he works. When carrying out selling activities, a salesman may only introduce the functions, efficacy and methods of use of the company's products, instead of making propaganda which overstates the product's functions or debases commodities of the same category, taking the opportunity to recruit salesmen or develop the next level of salesmen for the transforming enterprise, or taking the opportunity to organize training activities.

X.

A transforming enterprise shall centrally organize the training activities of its salesmen, shall bear training expenses, and shall accept the inspections and supervisions of relevant departments. The managers, lecturers and tutors of the training activities must be formal employees of the transforming enterprise. No salesman is allowed to organize trainings or to engage in management. The contents of the trainings shall be limited to the introduction of product-related knowledge, selling skills and interpretation of the company rules and systems, and no propaganda shall be made to overstate the product's functions or debase other commodities of the same category. The number of the salesmen receiving training each time shall not exceed 50.

A transforming enterprise must work out the annual training plans for the salesmen (including the time, place, contents and number of participants, etc. of trainings), shall, by the end of November of each year, submit the plans to the State Administration for Industry and Commerce, the Ministry of Foreign Trade and Economic Cooperation, and the State Economic and Trade Commission for record, and shall accept the inspections and supervisions of the relevant departments.

XI.

A transforming enterprise's salesmen shall engage in selling activities in accordance with the relevant provisions, and the transforming enterprise shall bear the liabilities for its salesmen's acts in violation of laws or rules during their selling of the enterprise's products.

XII.

The validity period of the "Salesman's Certificate" issued by the original State Bureau of Internal Trade shall expire at the end of 2001. From the year 2002, the State economic and trade department will, jointly with the labor department, enact separate administrative measures in accordance with the relevant provisions of the State.

A transforming enterprise shall report, every half a year, the number of the salesmen in each province and the relevant information to the State Administration of Industry and Commerce, the Ministry of Foreign Trade and Economic Cooperation, and the State Economic and Trade Commission.

XIII.

The transforming enterprises' acts in violation of laws or rules shall be investigated by the administrative organ of industry and commerce in accordance with the relevant provisions of the State.

XIV.

These Provisions shall enter into force as of April 1, 2002.