Domestic firms are calling for rules governing the direct sales sector which give them equality with foreign competitors in the soon-to-be-opened industry.

In keeping with its commitments to the World Trade Organization (WTO), China promised to lift a ban on direct sales this year. A rule governing the distribution mode is also being drafted by the Ministry of Commerce (MOFCOM) and the State Administration for Industry and Commerce (SAIC).

But the new rule does not allow for domestic firm to take part in the direct sales sector, according to an expert from the Development and Research Center (DRC) under the State Council.

The rule, which has been drafted, merely limits the opening to foreign-funded direct sales companies.

"Currently, no moves to stipulate rules or regulations for domestic companies are available," said the anonymous expert, who has studied the issue for many years.

No rules mean no opening to domestic companies, he said.

But domestic companies are ready and willing to play a role in the industry.

"They are crying out for equal treatment with their foreign-funded counterparts," he said.

There is a desperate need for rules which will allow for the industry's opening to local investors, he said.

A report, saying earlier that four local companies have been approved as the pilots to take part in the direct selling business, attracted great attention in the sector as local companies are excited over the ending of the ban.

But the reports proved to be false, as MOFCOM denied the existence of the so-called pilots, saying it had no such plans.

The reports said the China High-tech Health Industry Committee (CHHIC) had approved four direct-sales pilots in Sichuan, Hubei, Zhejiang and Liaoning provinces.

A CHHIC official told China Daily that the operation of the market environment research centre under the CHHIC, which is responsible for the field, has been stopped.

But he declined to elaborate further.

Liu Zhengtian, president of the Sichuan Zhengtian Industrial Co Ltd, one of the four so-called pilots, said he has been confused by the latest development.

He said the centre told the company it was conducting a study on direct selling before the government lifted its ban.

"We are eager to resume business and have made many preparations for the lifting of the ban, including discussion of business modes and recruitment of sales staff," Liu said.

The DRC expert said the authorities should learn from this case that domestic firms are eager to take part, highlighting the urgent need to have a rule dealing with this.

China imposed a ban on direct sales in the country in 1998, saying it is hard to differentiate direct sales from so called "pyramid sales," which had led to widespread fraud, consumer losses and social disorder.

According to the Xinhua News Agency, China witnessed 2,796 cases of crackdowns on pyramid sales.

However, the global direct sales business is developing at a fast pace, with a market value of US$85.58 billion and more than 47 million sales staff.

The China market is attractive given that other markets have already been extensively exploited, the expert said.

Foreign and domestic industries have been waiting to get the green light from the government for a long time, he added.

MOFCOM Foreign Investment Administration Deputy Director-General Deng Zhan was quoted on February 9 that they were drafting a rule on direct selling.

"Illegal pyramid selling will face a serious crackdown, and meanwhile, legitimate direct selling companies from home and abroad will receive encouragement and support from the Chinese Government," he said.

But the rules, which are limited to foreign investors, disappointed local companies, said Zhang Xiangdong, a spokesman for the Tianjin Tiens Group.

Zhang warned that the foreign-funded firms will be able to grab control of the sales network if they are allowed to operate legally before domestic firms.

The group, which is a major supplier of nutritional supplements, skincare products and medical equipment, has already been conducting direct sales business in foreign countries.

The DRC expert said the government may expect to introduce a well-developed direct selling system by first allowing access to foreign funded companies.

"But they must pay attention to the local companies and offer them fair competition," he said.

(China Daily April 2, 2004)