Letter in Reply of the Ministry of Commerce of the People’s Republic of China on Relevant Issues Concerning Direct Sales

-Ministry of Commerce publish a letter in reply on relevant issues concerning direct sales on December 15, 2006 to the competent commercial administrations of all provinces, autonomous regions, municipalities directly under the Central government, cities specifically designated in the state plan and Xinjiang Production and Construction Corp.

The enterprise in the administrative area of cities specifically designated in the state plan may apply for the business of direct sales to Ministry of Commerce through competent commercial administration of cities specifically designated in the state plan.

Foreign investors should submit their enterprise registration certificate, legal representative certificate, debt statement and profit and loss account verified by accounting and auditing organs in recent three years. Above materials should be notarized by the notary office in the countries or regions. where the investors are and notarial document should be provided (Chinese version should be provided). Foreign investor should also provide written statement that they have more than three years experience in direct sales.

The products for direct sales should accord with the range for direct sales stipulated in Announcement of No. 72, 2005 of State Administration of Industry and Commerce, the standard of the state on notary, permit, quality examination or mandatory standard and industry standard.

The enterprises should submit detailed plan about service network. The plan should meet the requirements of the consumers in different areas. The person for direct sales should know the function and price of the product. The service network should not be established in residence, school, hospital, camps of armed forces and government organs.

The enterprises for direct sales should establish service network according to their submitted plan within six months at the approval. The area that has no service network should not be engaged in direct sales. The enterprises that failed to establish service network within six months must not be engaged in the business of direct sales in the area. If the enterprises plan to do the business of direct sales, they should make application again in accordance with the Regulations and corresponding provisions.

The enterprises for direct sales may establish more service networks in light of the development of the business. It does not need to make application again for the enterprises to add service network in the approved area for direct sales, but the plan should be reported for record to the Ministry of Commerce through provincial competent commercial administration. Local competent commercial administration may ask the enterprises for direct sales to add service network in accordance with Article 10, 2 of the Regulations, but reasons should be given. The enterprises for direct sales should report to the original examination and approval authority for approval when they readjust the plan of the service network or reduce the service networks.

China Construction Bank is appointed as the bank for the application enterprises to pay the earnest money. The application enterprises should deposit the earnest money into the account appointed by China Construction Bank in accordance with corresponding provisions of the Regulations after signing the special account management agreement for earnest money with China Construction Bank.

The application enterprises should make application for establishing provincial branches to the Ministry of Commerce through provincial competent commercial administrations.

Please contact directly with the Departments of Foreign Affairs, Market Construction, and Treaty and Law for any questions.

Ministry of Commerce of the People’s Republic of China
December 15, 2005