The largest direct seller from Taiwan Province, the Chlitina, on Monday launched the headquarters of its mainland operations in Shanghai and announced its decision to build an 89-million-yuan (US$11 million) production facility in the city's Songjiang District.

The move was taken by industry observers as a positive reaction to China's recent softening of a seven-year-long rigid restriction on direct selling.

On September 2 the State Council, China's cabinet, promulgated regulations on direct selling and regulations on forbidding pyramid-type selling. Under the new rules, any enterprise holding a direct selling permit is allowed to sell goods and services with no need to establish stores.

Dr. W.K.Chen, president of the house wares supplier, Chlitina, said, "As our marketing channels are increasing, the opening of direct selling market on the mainland will provide a wonderful opportunity for Keti (Chlitina) China, which now has 2,000-plus stores on the mainland, to expand its business."

"Our annual taking likely grows from the US$600 million in 2004 to US$3 billion in a few years to come," said Dr. Chen.

Official statistics show that the business turnover of the direct sale sector amounted to 35 billion yuan (US$4.3 billion) last year, including 30 billion yuan (US$3.7 billion) contributed by 10 foreign-invested companies that took an operation pattern of "stores plus salesmen". Industry observers predicted the market would grow at an annual rate of 20 percent after the thaw.

The new rules will trigger a reshuffling in some existing direct sale companies, however, the observers said. The rules set the threshold for a direct seller at 80 million yuan (US$9.9 million) in registered capital and 20 million yuan (US$2.5 million) in earnest money.

Wang Yi, an expert on direct selling, said, "The threshold will keep about 90 percent of the mainland's 2,000-plus direct sale companies out of business, and they will have to turn to other business."

Those under the reshuffle pressure are not only small firms. The new rules ban multi-layer direct sales and make such big names as Amway, which has a workforce of 180,000 people on the Chinese mainland, bear the blunt.

Eva Cheng, chairwoman of Amway (China) Ltd., said, "My company will make a shift in pricing scheme within one month, which will help enable our salespeople's behaviors and incomes to meet the requirements of the new rules."

Professor Qiao Xinsheng with the Zhongnan University of Business, Politics and Law, based in Wuhan, Hubei Province, said a direct sale system needs a transparent mechanism for information flow, yet China's market regime is not good enough to meet the demand. China chose to heighten the threshold for direct sale companies to normalize the domestic direct sale market so as to fulfill its WTO accession commitments, Qiao added.

(Xinhua News Agency September 15, 2005)