Direct Selling Versus Pyramid Selling in China: Consumer Protection & Crime Prevention

Upon its accession to the World Trade Organization in 2001, China
made the commitment that it would progressively liberalize the availability
and scope of the right to trade so that, within three years, all enterprises in
China would be able to trade in all goods. Since then, China has opened its
market to firms engaged in the direct, person-to-person sale of goods to
consumers without the involvement of wholesalers and retailers who have
a fixed place of business. Although direct sellers in China have gradually
increased, the organizers of pyramid schemes have also multiplied. To
regulate the direct selling industry and prohibit pyramid selling activities,
China has established a regulatory framework composed of administrative
regulations, criminal provisions, ministerial rules, and judicial and
procuratorial interpretations. From the perspectives of consumer protection
and crime prevention, this study outlines how China regulates its direct
selling industry, ascertains why pyramid selling in China has not subsided,
and explores what legislative reforms may be warranted.