Amway Made China a Billion-Dollar Market. Now It Faces a ...

China is now Amway's largest market, accounting for $2.6 billion in revenue, or about 30 percent of its worldwide sales, the company's president ... Business|AmwayMadeChinaaBillion-DollarMarket.NowItFacesaCrackdown.https://www.nytimes.com/2018/01/08/business/amway-china.htmlGivethisarticleAdvertisementContinuereadingthemainstoryLANZHOU,China—FengGangstoodinfrontof150peopleinaconferencehallinBeijingthatAmway,theAmericanmarketinggiant,callsitsflagship“experiencecenter.”IntroducedendearinglyasBigBrother,hepitchedthecompany’snewestproducttoanaudienceofrecruits—menandwomen,youngandold,oneastreetsweeperstillinhisorangemunicipaljumpsuit.Mr.FengsaidAmway’senergydrink,XS,couldreduceblood-alcohollevelsbyasmuchas70percent.Itcouldcuredepression,hewenton,orhelpsomeonewhoisdrunkdrivehome.Hisaim:togetthecrowdtogooutandselltheproducts.Formorethanadecade,sceneslikethisrepresentedafinancialsalvationforAmwayandothercompaniesthatusesalesrepresentativestorecruitothersbelowtheminwhat’scalledmultilevelmarketing.FacingdecliningfortunesintheUnitedStatesandelsewhere,theyturnedtoaballooningconsumerclassinChinahungryfornewproducts—andsusceptibletopromisesoftherichestobehadbysellingthem.Now,thefutureseemslesspromising.Thegiantsofmultilevelmarketinghavecomeunderadualassault,fromregulatorshereandintheUnitedStates.ImageAnAmwaypresentationinBeijing.DirectsellinghasbeenlegalinChinasince2005,withrestrictionsthathavebeenunevenlyenforced.Credit...LiWeiforTheNewYorkTimesTwocompanies,HerbalifeandUsanaHealthSciences,disclosedlastyearthattheyfacedinvestigationsintheUnitedStatesfortheiroperationsinChinaundertheForeignCorruptPracticesAct,whichprohibitsAmericancompaniesfrombribingforeignofficials.Another,NuSkin,settledasimilarcasewiththeSecuritiesandExchangeCommissionin2016,whileAvonProductspleadedguiltyin2014,resultingina$135millionfine.Amway,whichisnotpublic,hasnotdisclosedanyinquiriesbyAmericanregulators.InoneChineseprovince,however,theconductofsomeAmwaysalesdistributorspromptedaninvestigation,onethatthevictimssaywassquelchedbylocalofficials,includingatleastonewithtiestothecompany.“ThisindustryisabsolutechaosforChina,”saidYouYunfan,aformerAmwaydistributorwhowroteascathingmemoirunderthepennameXiaoFei.NotingthatChineselawprohibitsmanyoftheworstpracticesassociatedwithmultilevelmarketing,headded,“Therootproblemisthatthegovernmentisriddledwithcorruptionandnotdoingitsjob.”Thatmaybechanging.Fourgovernmentagencieslastyearannouncedacrackdownonthemarketingmodel,whichcriticsdenounceasapyramidscheme.TurbulenceintheChinesemarketcouldbedevastatingforAmway,whichhasreliedonChinaformuchofitsgrowthoverthelastdecade.Itisnow,byfar,thelargestofthemultilevelmarketingcompanieshere,with1.5milliondistributors,morethanalltheotherscombined,accordingtotheMinistryofCommerce’srecords.ChinaisnowAmway’slargestmarket,accountingfor$2.6billioninrevenue,orabout30percentofitsworldwidesales,thecompany’spresident,DougDeVos,toldReuterslastyear.ImageTheBeijingexperiencecenter.Chinaaccountsforabout30percentofAmway’sworldwidesales,thecompany’spresidentsaidlastyear.Credit...LiWeiforTheNewYorkTimesInastatement,anAmwayvicepresident,ScottBalfour,saidthecompanywelcomedthecrackdown,sayingitwoulddistinguishpyramidschemesfromlegitimatedirectselling.Amwayhasnotbeensingledoutinthecampaign,andithasbuiltanimpressivebrandhere,operatinggleamingshowroomsinBeijingandelsewhereandsponsoringtheChineseOlympicteam.Yetithasbeendoggedbyaccusationslikethoseithasfacedelsewhere.FormerAmwaydistributorshaveorganizedonlinetowarnothersofthecompany’smodel.Amway’snameinChinese,anli,hasenteredthevernaculartomeanto“promoteheavily”orto“bebrainwashed.”Amwayandothersfacedskepticismfromtheauthoritiesnearlyfromthemomenttheyenteredthemarketintheearly1990s.Multilevelmarketingwasofficiallydenouncedasan“economiccult,”andin1998thegovernmentbannedalldirectselling.OnlywhennegotiatingentryintotheWorldTradeOrganizationdidChinaagreetoAmericandemandstoallowthecompaniesin.Directsellinghasbeenlegalsince2005,thoughwithrestrictionsintendedtodiscouragetheendlessrecruitingofnewdistributors,acomponentofAmway’smodel.Enforcementofthelaws,however,remainsuneven.“It’sagrayarea,”saidLiuKaixiang,aprofessoratPekingUniversity’sSchoolofLawwhoconductsresearchattheuniversity’sindustry-affiliateddirect-sellingresearchcenter.“Themajorityofthesedirect-sellingcompaniesarerightontheedge.Iftheyweretocompletelyfollowthelaw,therewouldbenomarketatall.”Business&Economy:LatestUpdatesUpdated April1,2022,1:03p.m.ETThestudentloanpauseissupposedtoendinamonth.Thatlooksunlikely.AmazonworkersonStatenIslandvotetounionize,alandmarkwinforlabor.MorenationswilljoinU.S.inreleasingemergencyoilreserves.ThevagariesofChineseregulationsandanavariciousbureaucracyhavealreadyensnaredothers,likeAvon,oncethetopdirectsellerhere.In2014,itadmittedtoproviding$8millionincashandgiftslikeGuccipursestoChineseofficials.ImageAnothersceneinsidethecenter.Amwayhasnotbeensingledoutforscrutiny.Credit...LiWeiforTheNewYorkTimesSimilartroublescaughtupwithNuSkin,whichsettledacasebytheSecuritiesandExchangeCommissionin2016byadmittingthatitpaidtheequivalentof$154,000to“acharitytoobtaintheinfluenceofahigh-rankingChineseCommunistPartyofficial”toresolveapotentialfine.Herbalifedisclosedinastockfilingthatit,too,wasunderinvestigation,whileUsanaHealthSciencesannouncedthatithadalertedtheDepartmentofJusticeaboutquestionsover“expensereimbursementpolicies”ofitssubsidiaryinChina.AmwaysaidinitsstatementthatithadnotfacedquestionsfromAmericanregulatorsaboutitspracticesinChina.Itsbusinesshasnonethelessraisedquestions.InAmway’sBeijingcenter,areporterwithTheNewYorkTimeslistenedasBigBrotherFengdetailedsalestacticsthatwouldviolateChineselawifused,promisingthatnewrecruitscouldearnmoreastheyrecruitedothers.Afewdayslater,oneoftherecruitswasoutonthestreetsrepeatingthepitchashehandedoutfliersfortheXSenergydrink.Theflierssaidnewdistributorscouldultimatelyearntheequivalentof$75,000ayear.Infact,96percentofdirectsellersmakelessthan$750ayear,roughlytheaveragemonthlywageforprivate-sectorworkers,accordingtogovernmentstatistics.Insomeregions,Amwayinparticularhascomeunderfocus.InLanzhou,acityofnearly3.7millionalongtheYellowRiverandtheancientSilkRoadinGansuProvince,dozensofformerdistributorshaveaccusedthecompanyofabettingextortionatepracticesthatleftthemindebt.Theyaccusedthoseabovethemofconningthemintobuyingproductstheycouldnotrealisticallysell.Oneofthem,LiuGang,saidhehadbeenpersuadedtogiveupajobasateacherin2009topursueanAmwayfortune.ImageXSisanAmwayenergydrink.SomeformerdistributorsinChinahavecomplainedthattheyweredupedintobuyingproductstheycouldnotrealisticallysell.Credit...LiWeiforTheNewYorkTimesIntrainingsessions,someofwhichherecordedandplayedforTheTimes,hewastoldthatthewaytoachievesuccesswasbyworkingunderpressure.Hetookoutloans—firstmortgaginghishome,thenborrowingfromunofficiallendersworking,heandotherssaid,withthelocalAmwaystaff—toloaduponvitamins,waterfiltersandsoaps.By2014,hecouldnotunloadhismerchandiseandfaced$600,000indebt.“Iwasbrainwashed,”Mr.Liusaid.TheprovincialofficeoftheStateAdministrationforIndustryandCommerce,whichregulatesbusinesses,tooktheaccusationsseriously.InMay2016,theofficesentalettertocomplainantssayingthattherewasevidenceofwrongdoingandthattheregion’stoptwodistributors,ahusband-and-wifeteam,TangJinsongandZhaoYufang,“aresuspectedofoperatingapyramidscheme.”“Toclimbtothetop,youneedateamofdistributorsunderyou,”saidLiuJianhong,anotherformerdistributor,whoprovidedthelettertoTheTimes.“Itformsapyramid.Wewereattheverybottom.”Mr.Balfour,theAmwayvicepresident,saidthattheLanzhousituationhad“involvedanumberofseriousviolationsofourrulesofconduct,aswellasviolationsofChineselendinglaws”bysalesdistributors,butthatthecompanyitselfhadnotbeenaccusedofwrongdoing.Inasecondstatement,Amwaysaidthatitdidnotendorseexaggeratedclaimsofdistributorsandthatcompanypolicyprohibitedobtainingloanstobuyproducts.Mr.Balfoursaidthecompanywouldinvestigatespecificclaimsbroughttoitsattention.TheregulatoryofficeinLanzhougaveenoughcredencetothecomplaintsthatitreferredthefindingstothelocalbranchofChina’smainlawenforcementagency,thePublicSecurityBureau.Thentheinvestigationstalled.WangXingwei,theadministrationofficialinchargeoftheinitialinvestigation,saidinatelephoneinterviewthathehadbeentransferredoffthecase.TheformerdistributorssaidtheybelievedthatregionalofficialssympathetictoAmwayhadquashedtheircomplaints.TheycitedaninstancewhenthestatetelevisionchannelinGansu,afterinterviewingthem,receivedadirectivenottoreportontheircase.Accordingtoajournalistatthestation,GaoZenglei,thedirectivecamefromtheCommunistParty’sprovincialpropagandadepartment.Atthetime,itwasheadedbyLiangYanshun,whoonceparticipatedinanAmwayprogramthatenrolledofficialsinclassesatTsinghuaUniversityandHarvardUniversity,accordingtoHarvardandhisonlinebiography.Mr.Liangdidnotrespondtorequestsforcomment.ImageAnimageatthecenterfeaturingAmway’sfounders,RichardM.DeVosSr.,left,andJayVanAndel.Credit...LiWeiforTheNewYorkTimesMs.Zhao,oneofthetopdistributors,dismissedtheaccusationsandsaidsheandherhusband,Mr.Tang,haddoneeverything“entirelyinaccordancewiththecompany’ssystem,accordingtothecompany’soperatingmodelandundertheoversightofthecompany.”Theaggrieveddistributors,sheadded,wereresponsibleforanydebtstheybuiltup.“Everyoneshouldberesponsiblefortheirownactions,”shesaid.“Iftheydon’tknowthis,theywon’tlastinthisworld.”Mr.BalfoursaidAmwayhadpunishedindividualsinvolved,thoughhedidnotdisclosenamesorsanctions.Amway’swebsitestillcountsMr.TangandMs.Zhaoasamongitstophandfulofsalesdistributors,andtheirphotoisondisplayatAmway’sbigBeijingconferencehall.Theformerdistributors,bycontrast,facefinancialruin.LiuJianhongamassed$300,000indebt.InChina,thatmeansshehasbeenputonagovernmentlistthatprohibitsherfromflying,takingtrainsoracquiringnewcreditcards.“I’mgoingtobedealingwiththistherestofmylife,”shesaid.AdvertisementContinuereadingthemainstory