The global cosmetics direct selling giant Avon Products Inc said it has gained approval for a pilot direct selling business, a prelude to China's lifting of the ban on the industry.

Qian Yi, a spokeswoman from China Avon, said Avon has been informed of the decision unofficially.

"Avon has got verbal permission to test direct selling in China. However, to date, we have not received any official document," she said.

She refused to provide details about the test until the company receives official documents.

She said Avon currently is working with the Ministry of Commerce on the test and would give further details at the right time.

The ministry says it will give an official response but it is not available yet.

Amway, Avon's major global rival, said it has no idea about the test and refused to comment on the permission.

China is expected to lift the ban and set down rules for direct selling in the third year of its accession to the World Trade Organization.

A draft regulation on direct-selling companies is due for public comment in September, according to officials from the Ministry of Commerce.

The rules will be introduced before December 11, meeting the deadline for China's commitments to the WTO.

Analysts say the Ministry of Commerce is expected to gain experience by granting Avon permission for the test.

"The government may hope to see what will be the best mode for China to run the direct selling business," said an expert from the State Council Development Research Centre.

The expert, who declined to be named, forecast that the test would not be limited to Avon only.

China imposed a ban on direct sales in 1998, saying it was hard to differentiate direct sales from so-called "pyramid sales," which had led to widespread fraud, consumer losses and social disorder.

Ten foreign-funded direct selling companies were allowed to continue their operation in China after the 1998 crisis, but they had to change their sales mode to selling goods through retail outlets and "non-employee" sales representatives.

The companies usually sell without fixed outlets, but the transition was successful and they achieved quick growth rates in China.

They have moved to prepare for the opening up of one of the most important markets for them.

China is Avon's No 1 growth opportunity in Asia, maintaining an annual growth rate of 30 per cent.

Shou-Kang Kao, president of Avon China, said that Avon China would keep the beauty boutiques while developing new selling methods that conform to Chinese regulations expected to be issued this year.

Avon started to sell its products through beauty boutiques in 1998 and has 5,500 boutiques in the country's 74 cities.

For Amway, the Chinese market is the largest, with revenue reaching 10 billion yuan (US$1.2 billion) last year.

Amway plans to increase the number of Amway retail outlets from the current 120 to 180 by the end of the year.

Another company Nu Skin has decided to expand its presence from the east and south to northern China. The first store in Beijing is expected to open by the end of this year.

(China Daily July 23, 2004)