China acts to prevent `tragic people' losing their savings to salesmen

"Knock, knock."

"Knock, knock."

"Who's there?"

"The Avon lady."

Not any more. Not in China at any rate.

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Door-to-door commission sales, a western phenomenon like CocaCola and hamburgers which was imported into communist China since the country began opening up in the 1980s, has been banned by the government.

Avon pioneered direct marketing in China. The American firm opened a factory in Guangzhou eight years ago and by last month there were 20,000 Chinese Avon ladies selling lipstick and face creams in towns and villages all across the country.

Three years ago Amway followed and by this year had organised 80,000 sellers of liquid soap and detergent. The Mary Kay company established a network of door-to-door beauty consultants who competed for prizes like pink Volkswagens.

"It was very much against Chinese tradition to call at someone's house offering things for sale," said a Beijing businessman. "But this very quickly caught on and has become part of the get-rich-quick culture in China."

The key to fulfilling the American dream was to sign up friends and relatives as sellers. Amway encouraged its eager Chinese devotees to find seven recruits, each of whom would find seven more, and then seven more, all paying a commission back up the line.

It was inevitable that Chinese entrepreneurs would see the potential in direct marketing, and in recent years dozens of pyramid schemes have duly appeared, pushing goods like diet pills, herbal medicine and exercise machines. In a typical operation in Hunan province, tens of thousands of people were induced to sign up to sell foot massage machines called Kang Fu Bao (Healthy Skin Treasure). The retail price was 700 yuan (£60) but as commissions piled up, some unsuspecting buyers were paying over 3,000 yuan in the hope of selling on at a profit.

"The sellers would target first the family, then friends and neighbours," said the businessman. "People would eventually end up paying two or three times the shop value, and those at the bottom of the pyramid who parted with their savings were left with goods they could not sell. It was a recipe for unrest and that's what the government feared."

The Communist Party was particularly concerned about a repeat of events in Albania, where the collapse of pyramid-investment schemes three years ago led to anarchy. Officials were also uneasy about sales groups developing into sects. The American companies used fundamentalist zeal in promoting sales, preaching personal empowerment and what the People's Daily disdainfully described as "excessive hugging".

Chinese firms had enthusiastically copied the idea of revivalist-style motivational meetings. At packed sales rallies for massage machines, recruits were encouraged to shout: "We want to get rich! I want success!"

On April 21st, the government made its move. The State Council announced a ban on direct commission sales. It said the prohibition was designed to protect Chinese people from buying inferior goods peddled at "rat meetings" which threatened social order and spawned "weird cults, triads, superstitious groups and hooliganism". Criminals had used direct selling to "spread superstition and carry out illegal activities, affecting the country's social stability", and respectable people like party officials, teachers and soldiers had been enticed into selling fake and low quality products.

The Beijing Economic Daily backed up this claim by reporting cases where "tragic people" had lost their savings. It said no less than 50,000 migrant workers had descended on the city of Wuhan to sell Xingtian Company's ankle massaging machines, drawn by aggressive advertising which asked gullible people: "Do you want to get rich? Do you want to have a lover? A car? An apartment?"

The response to the edict from the two million laid-off workers and peasants who had turned to direct marketing to make a living was fury. In the southern town of Zhangjiajie about 10,000 people left with massage machines filled the streets to demand their money back from the company. Four people were killed in a riot, according to Mayor Li Gangting, who said many victims were "lured by the promise of riches and then deceived". In nearby Hengyang, a mob beat to death four company owners when they refused compensation.

Avon, Amway, Mary Kay and other foreign companies had invested £100 million in China and now stand to lose £1.4 billion in yearly sales. A US trade representative, Charlene Barshefsky, who was in Beijing last week, objected strongly to the ban but the Chinese are unlikely to reverse the order.

Amway, which had net sales of £55 million in China last year, will stay on and switch to retail outlets. Avon is undecided what to do. Many unregistered direct-sales firms are ignoring the new rules, according to the Chinese media.

The ban on commission sales does not mean the death of the Chinese salesman however. Door to door vending by individuals has not been proscribed.

"Every day someone comes to my apartment selling carpets, or furniture," said the Beijing businessman, "and they are forever calling at the office selling real estate, business cards, even ties and socks. That won't stop. I'm thinking of putting up a sign myself saying `No sales agents allowed'."