Page 288 - 2019 White Paper on the Business Environment in China
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9 White Paper on the Business Environment in China
billion, according to the World Federation of Direct in China under the Foreign Corrupt Practices Act, which
Selling Associations (WFDSA). Growing at an estimated prohibits American companies from bribing foreign
three-year compound annual growth rate (CAGR) of 13 officials. Another, Nu Skin, settled a similar case with the
percent, China is expected to overtake the US as the Securities and Exchange Commission in 2016, while Avon
largest direct selling market in the next few years. Direct Products pleaded guilty in 2014, resulting in a US$135
Selling News claims the explosive growth in China鈥檚 million fine. Amway, which is not public, has not disclosed
direct selling market can be attributed to the Chinese any inquiries by American regulators. Turbulence in the
government鈥檚 approval of more licenses for direct Chinese market, however, could be devastating for the
selling companies. Growing at an estimated three-year company, which has relied on China for much of its growth
CAGR of 13 percent, the country is expected to overtake over the last decade. It is the largest multilevel marketing
the US as the largest direct selling market within the companies by far in China, with 1.5 million distributors,
next few years (Coresight), but direct selling registered more than all the others combined, according to the
a deceleration in current value growth in 2017, and Ministry of Commerce鈥檚 records. China is now Amway鈥檚
this is now expected to continue. The emergence and largest market, accounting for US$2.6 billion in revenue,
rapid growth of e-commerce was a key factor which or about 30 percent of its worldwide sales.
greatly impacted the whole direct selling channel in
China. The direct selling regulation was revised by the Retail
Chinese government in 2016. This revision cancelled
the requirement for at least three years鈥� experience China鈥檚 retail sales increased by 9 percent from a year
of direct selling in overseas markets for international earlier in August 2018, following a 8.8 percent rise in the
companies that hope to enter China in the Free Trade previous month and beating market expectations of
Zones located in Shanghai, Guangdong, Tianjin and 8.8 percent. Sales growth accelerated for: jewelry (14.1
Fujian (Euromonitor). percent vs 8.2 percent); personal care (15.8 percent vs
11.3 percent in July); home appliances (4.8 percent vs 0.6
As part of China鈥檚 WTO commitment, the Chinese percent); office supplies (5.4 percent vs 1.8 percent); oil,
Government agreed to allow market access for wholesale oil products (19.6 percent vs 18.4 percent); and building
or retail trade services away from a fixed location as part materials (7.9 percent vs 5.4 percent); while was stable for
of China鈥檚 WTO commitment; however, these new laws cosmetics (at 7.8 percent). Meantime, sales of garments
and restrictions are restrictive especially in regards to (7 percent vs 8.7 percent); furniture (9.5 percent vs 11.1
multi-level marketing (MLM) organizations, which are percent); and telecoms (6.4 percent vs 9.6 percent) rose
characterized as illegal pyramids under these regulations. at a softer pace, while those of automobiles continued
According to Harris Bicken, one of few law firms that to fall (-3.2 percent vs -2 percent). From January to
represent foreign companies doing direct marketing in August, retail sales grew 9.3 percent compared to the
China, sales promoters earn commission only according same period 2017. Retail Sales YoY in China averaged
to their sales performance and the proportion of payment 12.36 percent from 2010 until 2018, reaching an all-time
to sales promoters should not exceed 30 percent of the high of 19.90 percent in January of 2011 and a record
income generated from sales. Commission paid to a low of 8.50 percent in May of 2018 (Trading Economics).
salesman is not allowed to be calculated based on the
MLM structure, and there must be a fixed location service In the first half of the year, retail sales expanded 9.4
center in each area where sales occur for the purpose of percent year on year to reach 18 trillion yuan (about
after-sales service and consultation. Furthermore, the US$2.7 trillion), compared with a 9.8-percent growth
Chinese Government has remained slow to approve in the first quarter. Retail sales in rural areas increased
direct-sales license applications for new entrants over the 10.5 percent year on year in the first half, continuing to
past few years (Harris). outpace the growth in urban regions, where sales rose
9.2 percent. In breakdown, the catering sector reported
Several major international companies have a 9.9-percent year-on-year rise in revenue, while sales
had success in overcoming these barriers, but four of other consumer products increased by 9.3 percent.
government agencies announced a crackdown on the Online spending remained robust, with sales surging
marketing model in 2017 and 2018. Two companies, 30.1 percent to reach 4.1 trillion yuan in the first half.
Herbalife and Usana Health Sciences, disclosed that During the period, final consumption expenditure
they faced investigations in the US for their operations contributed to 78.5 percent of China鈥檚 economic growth,
288
billion, according to the World Federation of Direct in China under the Foreign Corrupt Practices Act, which
Selling Associations (WFDSA). Growing at an estimated prohibits American companies from bribing foreign
three-year compound annual growth rate (CAGR) of 13 officials. Another, Nu Skin, settled a similar case with the
percent, China is expected to overtake the US as the Securities and Exchange Commission in 2016, while Avon
largest direct selling market in the next few years. Direct Products pleaded guilty in 2014, resulting in a US$135
Selling News claims the explosive growth in China鈥檚 million fine. Amway, which is not public, has not disclosed
direct selling market can be attributed to the Chinese any inquiries by American regulators. Turbulence in the
government鈥檚 approval of more licenses for direct Chinese market, however, could be devastating for the
selling companies. Growing at an estimated three-year company, which has relied on China for much of its growth
CAGR of 13 percent, the country is expected to overtake over the last decade. It is the largest multilevel marketing
the US as the largest direct selling market within the companies by far in China, with 1.5 million distributors,
next few years (Coresight), but direct selling registered more than all the others combined, according to the
a deceleration in current value growth in 2017, and Ministry of Commerce鈥檚 records. China is now Amway鈥檚
this is now expected to continue. The emergence and largest market, accounting for US$2.6 billion in revenue,
rapid growth of e-commerce was a key factor which or about 30 percent of its worldwide sales.
greatly impacted the whole direct selling channel in
China. The direct selling regulation was revised by the Retail
Chinese government in 2016. This revision cancelled
the requirement for at least three years鈥� experience China鈥檚 retail sales increased by 9 percent from a year
of direct selling in overseas markets for international earlier in August 2018, following a 8.8 percent rise in the
companies that hope to enter China in the Free Trade previous month and beating market expectations of
Zones located in Shanghai, Guangdong, Tianjin and 8.8 percent. Sales growth accelerated for: jewelry (14.1
Fujian (Euromonitor). percent vs 8.2 percent); personal care (15.8 percent vs
11.3 percent in July); home appliances (4.8 percent vs 0.6
As part of China鈥檚 WTO commitment, the Chinese percent); office supplies (5.4 percent vs 1.8 percent); oil,
Government agreed to allow market access for wholesale oil products (19.6 percent vs 18.4 percent); and building
or retail trade services away from a fixed location as part materials (7.9 percent vs 5.4 percent); while was stable for
of China鈥檚 WTO commitment; however, these new laws cosmetics (at 7.8 percent). Meantime, sales of garments
and restrictions are restrictive especially in regards to (7 percent vs 8.7 percent); furniture (9.5 percent vs 11.1
multi-level marketing (MLM) organizations, which are percent); and telecoms (6.4 percent vs 9.6 percent) rose
characterized as illegal pyramids under these regulations. at a softer pace, while those of automobiles continued
According to Harris Bicken, one of few law firms that to fall (-3.2 percent vs -2 percent). From January to
represent foreign companies doing direct marketing in August, retail sales grew 9.3 percent compared to the
China, sales promoters earn commission only according same period 2017. Retail Sales YoY in China averaged
to their sales performance and the proportion of payment 12.36 percent from 2010 until 2018, reaching an all-time
to sales promoters should not exceed 30 percent of the high of 19.90 percent in January of 2011 and a record
income generated from sales. Commission paid to a low of 8.50 percent in May of 2018 (Trading Economics).
salesman is not allowed to be calculated based on the
MLM structure, and there must be a fixed location service In the first half of the year, retail sales expanded 9.4
center in each area where sales occur for the purpose of percent year on year to reach 18 trillion yuan (about
after-sales service and consultation. Furthermore, the US$2.7 trillion), compared with a 9.8-percent growth
Chinese Government has remained slow to approve in the first quarter. Retail sales in rural areas increased
direct-sales license applications for new entrants over the 10.5 percent year on year in the first half, continuing to
past few years (Harris). outpace the growth in urban regions, where sales rose
9.2 percent. In breakdown, the catering sector reported
Several major international companies have a 9.9-percent year-on-year rise in revenue, while sales
had success in overcoming these barriers, but four of other consumer products increased by 9.3 percent.
government agencies announced a crackdown on the Online spending remained robust, with sales surging
marketing model in 2017 and 2018. Two companies, 30.1 percent to reach 4.1 trillion yuan in the first half.
Herbalife and Usana Health Sciences, disclosed that During the period, final consumption expenditure
they faced investigations in the US for their operations contributed to 78.5 percent of China鈥檚 economic growth,
288
