China Law Bulletin - November 2005

Long-awaited Regulations on Pyramid and Direct Sales Issued

The Regulations Prohibiting Pyramid Sales (the "Pyramid Sales Regulations") and the Regulations on Administration of Direct Sales (the "Direct Sales Regulations") were promulgated on August 23, 2005 by the State Council and take effect on November 1 and December 1, 2005, respectively.

The Pyramid Sales Regulations prohibit any form of pyramid sales, which is defined as follows:

"an act by which an organizer or operator recruits persons, calculating and paying remuneration to the persons it recruits on the basis of the number of persons that person directly or indirectly recruits or on sales performance, or asks persons recruited to pay a certain fee for obtaining the qualification to participate, thereby seeking unlawful benefits, disturbing the economic order and affecting social stability."