MLM In The New China

By Jeffrey A. Babener


Signal Left, Turn Right

A visit to Beijing and Shanghai will quickly demonstrate to any westerner that China is hardwired into the 21st century as a global economic power. Walk down the streets and you will find Starbucks, Oreos, McDonalds, Kentucky Fried Chicken, James Bond and access to the internet.

The entrepreneurial spirit abounds everywhere and small business is omnipresent.

New skyscrapers and architecture in Beijing and Shanghai are unrivaled throughout the world. So fast have the modern skyscrapers arisen that at one point in the 1990s, 17 percent of the world's construction cranes were busy at work transforming Shanghai.

With more than one billion people, China is projected to reach the gross national product standard of the United States by the year 2015. The entrepreneurial spirit abounds everywhere and small business is omnipresent. The friendship between the United States and China was recently recognized as the United States Congress was in the midst of creating permanent favorable trade relations with China, and it is expected that China's entry into the World Trade Organization will further open huge markets.

Although open criticism of the government is still tightly regulated, and human rights matters are still an issue, the evidence is that the communist government has chosen to modernize by embracing the economics of capitalism. How can a communist regime in a capitalistic economic system be reconciled? The answer is practical necessity. A widely told anecdote tells the story. In the anecdote, the leader of China is in his automobile with his driver, which approaches a stoplight. The Chinese premier says to the driver, "Turn on the left turn signal, turn right." This practical approach demonstrates the economic future of China.

MLM is on the Way.

Those American direct selling companies that realize the future of China started laying a foundation in the 1990s. Companies, such as Amway, Avon and Mary Kay have made major investments in China in anticipation of the opportunity. Although the payoff has yet to come, U.S. MLM companies that lay the foundation will have great rewards in the future.

Although the payoff has yet to come, US MLM companies that lay the foundation will have great rewards in the future.

It is not only American direct selling companies that will prosper. China, itself, will produce great direct selling companies from within. The company with the greatest anticipated future is Tianshi Health Products of Beijing and Tianjin, China.

Tianshi, founded by Mr. Jinyuan Li, a highly respected business leader in China, is a major example of the new entrepreneurial China. Tianshi, which manufactures a broad line of dietary supplements and traditional Chinese herb products, has become a diversified conglomerate occupying a sizable property in one of the many new industrial areas established to foster business development. Tianshi has 2,000 employees and state-of-the-art equipment for manufacturing its products. Its growth has paralleled the regulatory climate in China for direct selling. At its peak, Tianshi had 3 million distributors in China. After regulatory changes in 1998, Tianshi, as with others such as Amway, converted its sales to upwards of 1,000 stores throughout China. It is well poised to return to the multilevel approach expected to be authorized by the year 2003.

As with successful American companies, Tianshi has moved beyond the borders of China and is taking the Chinese brand of entrepreneurialism abroad. At the invitation of Governor Gary Locke of the State of Washington, Tianshi has acquired land and established its American headquarters near Seattle, Washington. Simultaneously, Tianshi has had stellar success in the Russian market and established bases in Asia and Europe.

MLM in China - Up, Down, Up

As MLM developed in China in the 1990s, its reception by the government has been a bit of a roller coaster, with the ultimate prospects looking very good.

In the mid-1990s, observers were quick to note the tremendous potential of the Chinese MLM market, but to also note cautionary warnings. At one conference, an expert on entry to China noted that the stoplight was blinking "yellow" as opposed to "green." In the context of the mid-1990s government attitude toward MLM, the commentator noted:

"1.  If a distributor emphasizes earning opportunity or ability to earn large amounts of money, the activity may be deemed to be ‘polluting the mind' of the Chinese people.

"2.  If a distributor emphasizes economic independence of a distributor or possibly leaving employment, it may be deemed: ‘socially disruptive.'

"3.  If a distributor emphasized how good it is for people to be free and independent - i.e. underscoring concepts of freedom, it can be deemed to be ‘counter revolutionary,' and thus dangerous to the individual."

In the second half of the 1990s, MLM began to blossom and U.S. companies began to invest. Unfortunately, as well, a number of pyramid schemes and get-rich-quick scams developed. In 1998, the collapse of one of the pyramid scams sparked a riot and deaths in at least one city. As a result, the Chinese government banned direct selling. As a result of efforts by major American direct selling companies and the United States government trade representatives, an interim solution was reached in which direct selling companies could offer their products through fixed locations in which customers came to the fixed locations to purchase the products. As part of the understanding, it was expected that the Chinese government would permit direct selling to resume by the year 2003, and that new guidelines would be adopted.

In fact, some expert observers of the MLM situation in China expect that 2003 is merely the outside time period for return to direct selling activity in China and that it will occur much earlier. Two primary reasons are responsible for the positive future of direct selling. First, the admission of China to the World Trade Organization means that China is opening its door to more foreign business activity, and the anticipated approval of normal trade relations with China by the United States Congress is viewed as an act of friendship between the United States and China. Secondly, many government industries are contracting or disappearing and making way for a free market economy. In the short run, this will mean a number of individuals will lose government employment and will be looking for entrepreneurial ways to earn a living. It will be in the interest of the Chinese government to allow its citizens to have many avenues to engage in entrepreneurial activities, one of which is direct selling. 

The Cat is White or Black.

It was the Chinese leader Deng Xiaoping who took power in 1976 and led China into a new era currently led by Jiang Zemin. Deng Xiaoping took a very practical view toward modernization of the economy of China. Although the government remained in firm control as a communist government, the decision was made to allow the development of China to occur through coordination of government activity and capitalistic activity. Deng Xiaoping was famous for his position that it did not matter how China achieved modernization so long as it achieved modernization. He stated: "It doesn't matter whether the cat is black or white, as long as it catches mice." And that is the current state of affairs in China.

China - MLM Rewards.

China is steam rolling into the 21st century as a global economic power. It is clear that MLM and direct selling will prosper greatly in China in the 21st century. It is only a matter of a short time before American distributors will be actively sponsoring downlines in China and vice-versa. MLM companies that lay a foundation at the beginning of the 21st century will reap major rewards.

Jeffrey A. Babener
Babener & Associates
121 SW Morrison, Suite 1020
Portland, OR 97204
Jeffrey A. Babener, the principal attorney in the Portland, Oregon law firm of Babener & Associates, represents many of the leading direct selling companies in the United States and abroad.

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