China’s 100-day action to crack down on illegal practices in the health products market, including those by direct selling companies, has ended. A total of 49 direct selling products have been revoked.
Earlier this week, the 13 Chinese departments that launched the nationwide 100-day campaign in January to rectify the health market chaos jointly held a press conference to inform the public of their efforts. They reported that “after 100 days of joint rectification, the health market chaos was effectively curbed, but the hidden dangers caused by chaos and some deep-seated problems still exist.”
How It Began
Increased scrutiny by the Chinese government of health companies in the direct selling sector intensified after high-profile incidents that started last December. That month, Tianjin-based Quanjian Group was investigated for false advertising after it used the image of a girl who died of cancer in a promotional poster for cancer-fighting products. Since the incident, the State Administration of Market Supervision (SAMR) has attached great importance on promotional claims by health companies.
A month later, authorities in Huanghua investigated Hualin Suanjianping Biotechnology Co. Ltd. on suspicion of deceiving customers and operating as a pyramid scheme. Within days, 13 ministries and government agencies jointly launched a 100-day action to rectify the healthcare products market and ban local regulatory authorities.
Led by the State Administration of Market Regulation, the departments included the Ministry of Public Security, which while evaluation of health products was being carried out requested that the relevant approvals and filings for direct sales be suspended; the Ministry of Industry and Information Technology, which established a 24-hour surveillance system to catch illegal activity online and curb spam phone calls promoting health products; and the Ministry of Civil Affairs, which investigated social service facilities for the elderly, who have been a major target for scams involving health supplements.
“We believe that regulatory efforts of the government will provide for the long-term sustainability of these industry. Moving forward, we will continue to follow the guidance we received from Chinese regulators, as we have done now for more than 17 years.” – Ritch Wood, Nu Skin CEO
Other departments included, the Ministry of Housing and Urban-Rural Development; the Ministry of Agriculture and Rural Affairs; the Ministry of Commerce; the Ministry of Culture and Tourism; the Health and Health Commission; the State Administration of Radio, Film and Television; the Chinese Medicine Bureau; the Supervisory Bureau; and the Internet Information Office.
The “Hundred Days of Action” officially began on January 8, 2019. The 13 departments carried out a 100-day law enforcement special campaign for six key industries and fields, four key places and regions, and ten key violations nationwide. They reported that as of April 18:
- The number of direct selling products involved in the revocation was 49; 54 food business licenses were revoked; 90 business licenses were revoked; and 465 counterfeit and fake dens were destroyed.
- 2.741 million law enforcement personnel were dispatched throughout the country to supervise and inspect key industries, key areas and key commodities. Among them, 282,000 people in densely populated areas such as communities, parks, and plazas were inspected, and key places such as hotels and hotels were inspected. In addition, 731,000 “health” stores were inspected.
- Conducted 64,000 administrative and administrative interviews; 191,000 publicity activities; and 42,000 collaborative law enforcement activities.
- In terms of law enforcement and handling cases, a total of 21,152 cases were filed nationwide, with a case value of 13.020 billion yuan. There were 9,505 cases closed, and 664 million yuan in fines. A total of 446 cases were transferred to judicial organizations.
- Recovered economic losses of 123 million yuan for consumers.
Impact on U.S. Direct Selling Companies
Two U.S. direct selling companies reporting first quarter 2019 revenue yesterday had different results from the impact of the 100-day action in China.
Net sales in Mainland China for Utah-based Nu Skin Enterprises were up 12 percent in the first quarter, helped in part by the successful launch of LumiSpa in December, which continued its momentum through the following ninety days. However, as noted by CEO Ritch Wood, the government review was largely focused on the health products market and Nu Skin elected to focus its consumer initiative on the personal care side of its business, which accounts for approximately 70 percent of sales in mainland China.
“We believe that regulatory efforts of the government will provide for the long-term sustainability of these industry,” said Wood. “Moving forward, we will continue to follow the guidance we received from Chinese regulators, as we have done now for more than 17 years.”
As for Salt Lake City-based USANA Health Sciences, net sales decreased 8.7 percent in Greater China during the first quarter of 2019. CEO Kevin Guest attributed part of the decline to the 100-day action but sees a return to normal sales activity now that the action has ended.
“The Chinese government’s 100-day review of the health product and direct selling industries that occurred during the quarter was accompanied by unexpected, persistent, negative media coverage about these industries in China,” said Guest. “We expect to see a more typical operating environment in China going forward. Although it takes time to recapture momentum, we believe we will begin to do so during the second quarter and that our results will further accelerate during the second half of the year.”
Earlier this month, Tupperware, the only other U.S. public company to release first-quarter results, reported a 1 percent increase in China sales.
In the next step, the 13 departments will continue to work together and take measures to continuously rectify the chaos of the health market. They intend to actively build a system of joint governance to safeguard the legitimate rights and interests of the people and a fair competitive market environment through five areas:
- One, continue the existing working mechanism of the 13 departments by strengthening coordination and improving supervision efficiency;
- Two, through the “100 Days of Action” summary, refine good measures, good experiences and good practices, and gain experience for future work, including organizing spot checks or entrusting third-party agencies to conduct unannounced visits to some key areas to ensure effective implementation of the results of the actions;
- Three, continue to strengthen supervision of law enforcement and case investigation. Key industries and fields will be closely monitored and supervised, and illegal elements will be prevented from “waiting for opportunities” to disrupt market and industry order and infringe on the legitimate rights and interests of consumers.
- Four, do a good job in popularizing law-enforcement work, actively launching news media, government departments, industry associations, and communities, and use radio, television, internet, newspapers, magazines, etc. to carry out three-dimensional and intensive publicity of media-based media. The long-term publicity mechanism of health science and popular law guides the people to scientific and rational consumption and raises the awareness of self-protection and the awareness of legal rights.
- And five, creating multi-party linkage. Cracking down on illegal activities; enforcing strict laws; purifying the market environment; optimizing the business environment; attracting the attention of relevant departments, localities and society; standardizing, guiding and promoting the development of the industry; and better satisfying people’s good life and health.
At the conference the departments further commented on what their roles were in the 100 Days of Action and what they will be in the future:
- The Ministry of Housing and Urban-Rural Development said they will be based on industry functions and strengthen the management and law enforcement of the urban environment of squares, parks and other outdoor places, and strengthen coordination and cooperation, strengthen joint law enforcement and promote the formation of a “health” market pattern.
- The Ministry of Agriculture and Rural Affairs introduced that in the 100-day operation, the agricultural and rural sectors actively played an overall role in coordinating the implementation of the rural revitalization strategy and worked together to grasp the livelihood issues of the peasants’ vital interests and carry out rectification work.
- The Ministry of Commerce introduced that during the 100-day action it actively cooperated with the health market to rectify the chaos and organized and carried out related work on the clean-up and rectification of the direct selling industry to purify the industry market environment.
- The Ministry of Culture and Tourism said that they will combine the special rectification work of the tourism market, strengthen communication and coordination with relevant departments, carry out joint supervision and law enforcement cooperation, earnestly safeguard the people’s consumption safety, and protect the legitimate rights and interests of tourism operators and consumers.
- The Health and Health Commission introduced the progress of the revision of the substance list according to the tradition of both food and Chinese herbal medicines.
- The State Administration of Radio, Film and Television said that during the “Hundred Days of Action”, the work was carried out in the field of national radio and television advertising. In the next stage, the relevant work on radio and television advertising in the health market will continue to be carried out in a solid manner and the order of advertising will be fully regulated.
- The Chinese Medicine Bureau said that various measures have been taken to regulate TCM health care services and will continue to be promoted as a long-term task through advertising monitoring, joint punishment and strengthening positive publicity and guidance.
- The Food and Drug Administration reminded consumers that medical devices are not household appliances, and introduced the relevant precautions when purchasing medical devices, reminding the public to find illegal activities can be reported in a timely manner.
- The Ministry of Industry and Information Technology, the Ministry of Public Security and the Office of the Internet Information Office indicated that they will actively cooperate with the relevant work in the next stage.