4 Major Considerations before Establishing a Direct Sales Operation in China

We’ve been getting a lot of inquiries recently from foreign companies seeking to break into the Direct Sales market in China. The Direct Sales license is one of the most challenging operational licenses to obtain in China in term of requirements for the investor, products and capital input. Based on past experience, the following is a list of major considerations any direct sales company should look at before attempting a China market entry.

Requirements for the investing company:

  1. Per Chinese laws, the investor establishing a Direct Sales enterprise must have a history of good standing for at least 5 years. This means no major criminal or regulatory investigations or penalties. For most companies, this is not a problem, though for some new companies the duration is an issue.
  1. The investing company must have direct sales experience out-side of China for at least 3 years. Again, for some companies the duration is a problem. If your company does not meet this requirement yet, it may be advisable to start up in places such as Hong Kong, and Taiwan. These “Greater China” jurisdictions can be helpful in introducing your product to the mainland Chinese market.

Financial Requirements:

  1. China has strict requirements as to capitalization for a Direct Sales enterprise. A Minimum registered capital of RMB 80 million is required which is not necessarily paid in full upon establishment, but must be officially recorded as registered capital. The company is legally liable up to the amount of its Registered Capital.
  1. There is also a minimum security deposit of RMB 20 million, which must be paid before establishment of the company. This may be refunded if the Direct Sales license is not approved. This deposit must stay in the company’s account for as long as it operates as a Direct Sales Enterprise.

If you company cannot meet these requirements, there may be other options for entry to the Chinese market to but Direct Sales within the PRC will be off limits until these requirements are met. If you would like to explore these other options, contact our China lawyers today.

Published by Jacob Blacklock on September 19th, 2016 tagged China News

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