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Dalian-based nutrition products producer Zhen-ao is the first domestic company to be awarded a direct sales licence.

The company said yesterday on its website the Ministry of Commerce had approved its application for direct selling on July 31.

US firm Nu Skin Enterprises also announced yesterday it had been granted a licence for direct sales.

Reports said the second batch of direct sales licences also includes domestic nutrition products company Ant Power and Hong Kong-invested Pro-Healthcare. Official information from the commerce ministry is not yet available.

"A license for direct selling does not mean everything," said Zhen-ao's Board Chairman Chen Yusong, adding the business will still rely on its competitiveness with foreign companies now that it has access to the direct selling market.

Nu Skin is allowed to conduct direct selling in Shanghai, where its Chinese headquarters are located, said Truman Hunt, president of the company. "We are planning to promote direct sales in Shanghai from the fourth quarter of this year, and to apply for licences in each of the provinces to expand across China by 2007," he said. Nu Skin spent four years preparing for its application.

Previously, only US cosmetics giant Avon Products Inc had been granted a licence for direct sales, in February, allowing it to hire independent promoters to sell products directly to consumers after the country lifted a seven-year ban on the business last December.

Over the following four months, Avon recruited over 114,000 independent promoters in China and over 31,000 are still applying.

Hundreds of domestic and foreign firms are interested in participating in the sector. By the end of last month, dozens had submitted applications to the commerce ministry and 25 said publicly that they would abide by China's laws and regulations on direct sales.

Enterprises like Amway, a US company selling products ranging from cosmetics to nutrition, have adjusted their payment system to adapt to the new regulations.

The Chinese Government banned direct sales in 1998 due to widespread pyramid selling schemes and other social problems.

Foreign-funded companies have since been allowed to adopt a business model of selling goods through retail outlets and "non-employee" sales representatives.

This situation remained until last April, when Avon was approved for a pilot programme allowing the company to seek 3,000 direct sales promoters in Beijing, Tianjin and Guangdong Province.

Last September, the State Council issued new regulations on direct sales, opening the business from December 1, 2005.

However, companies' sales declined as they adjusted their business models in line with the new regulations on direct sales. For example, Nu Skin said in its fiscal report that revenue in Greater China was US$55.5 million for the fourth quarter of 2005, US$7.3 million less than the same period in 2004.

(China Daily August 2, 2006)