Chinese officials ban direct marketing

Ada-based Amway changing distribution

The Associated Press, April 22, 1998

China ordered an immediate ban on direct marketing in a move likely to close a multimillion-dollar market for Ada-based Amway Corp. and other direct-marketing giants.

The ban, announced late Tuesday by the state-run Xinhua News Agency, reflected government concern about criminal abuses in the system of independent distributor networks, with their door-to-door sales and motivational meetings.

Direct-marketing companies have become hugely popular in China, where Amway has invested $1 million in the last five years. The worldwide distributor of home and personal-care products has 80,000 distributors and recorded $178 million in net sales in China in 1997.

Steve Van Andel, chairman of Amway Asia Pacific, said it is too early to project the impact of the directive, but noted that the company is changing its distribution system and in discussions with the government to arrive at some kind of agreement.

"Until our new proposed plan can be implemented, no sponsoring will be allowed," Van Andel said in a prepared statement. "The only sales allowed will be sales of products by the company for personal use."

In its report, Xinhua said direct-marketing companies tend to have closed organizations and covert business dealings. Criminals have used such activities to start secret societies, swindle, seek exorbitant profits and sell smuggled and fake goods, it said.

All this "seriously harms the rights of consumers and disrupts the normal economic order," Xinhua said.

Amway recently invested $100 million in eight distribution outlets and a factory in Guangzhou, in south China's Guangdong province.

Amway started operations in China three years ago. Avon Products Inc. also has a large presence there.