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STRATFOR.COM's Global Intelligence Update - 05 April 2000

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STRATFOR.COM Global Intelligence Update
05 April 2000

China Moves to Eliminate Direct Sales Schemes


China's State Administration for Industry and Commerce issued a
circular on April 3 banning direct sales activities in China. As
with the ongoing crackdown on the Falun Gong, the banning of direct
sales programs demonstrates the seriousness with which the
Communist Party views any potential organized network. However, the
current order resembles one issued in March 1998. It apparently has
been ineffective in stopping the proliferation of such organized
networks, emphasizing the limited ability of the party to deal with
such organizations.


China's State Administration for Industry and Commerce issued an
April 3 circular banning direct sales schemes, according to the
Xinhua News Agency. The circular calls for a crackdown by local law
enforcement on various direct sales programs, warning that all
those who confront the government or try to shift responsibility
for participation will be punished. Beijing's attack on direct
marketing schemes shows the seriousness with which China's
Communist Party regards the level of threat posed by such
ostensibly non-political organizations. More importantly, it
demonstrates the inability of Beijing to control the formation of
widespread yet tightly knit networks that have the potential for
political exploitation.

Direct sales schemes present China with two major problems. First,
Eastern Europe, Russia - and particularly Albania in the spring of
1997 - set a precedent for such programs to be viewed as possible
sources of economic and social instability. As well, several
demonstrations and protests in major cities in China have been
triggered over illegal investment schemes.

Second, and more important, direct marketing organizations create
tight-knit yet far-reaching networks with similar economic
interests. By organizing around a common economic interest, the
group also becomes a self-motivated political force, particularly
when personal economic interests are challenged. This commonality
of interest, revolving around the members' economic livelihood,
also makes the groups susceptible to outside political

While the Chinese Democracy Party and other underground or
dissident political organizations have an overt anti-Beijing
agenda, direct marketing programs, unregistered religious
organizations and groups like the Falun Gong can attract a more
extensive network of participants from all levels of society.
Membership does not require confrontation with the Chinese
Communist Party, just a common desire for economic, spiritual or
physical health.

However, such innocuous groups, promoting tight bonds among members
and encouraging group contact, can be easily persuaded to oppose
Beijing when challenged. The ability of these groups to organize
and act as a unit outside the scope of the Beijing's intelligence
was vividly demonstrated by the Falun Gong's mass gathering outside
the Communist Party headquarters in Beijing on April 25, 1999.

Spurred by the public demonstration, Beijing has since embarked on
an extensive, though not entirely effective, anti-Falun Gong
campaign. Even during the heightened security of China's annual
meeting of the National People's Congress in March, Falun Gong
demonstrators continued to appear in Tiananmen Square. Beijing has
been as unsuccessful in its attempts to block the formation of
direct marketing schemes as it has been with the elimination of the
Falun Gong.

In May 1998, the State Administration for Industry and Commerce
issued a similar order to ban direct marketing activities within a
six-month period. The order triggered riots and demonstrations that
left at least 10 dead, according to Hong Kong reports at the time.
That such an order needs to be re-issued after two years is
troubling for the Chinese government, as it reveals the inadequacy
of its previous efforts to stop such activities.

Beijing's inability to block the proliferation of direct marketing
schemes and the activities of the Falun Gong exposes a weakness in
the Chinese Communist Party. Rifts within the Chinese leadership
have been growing over China's economic policy, making groups like
the Falun Gong and direct marketing schemes increasingly dangerous
to China's leaders.

While in themselves these groups appear to offer little threat to
Beijing, they become more dangerous when challenged. For Beijing,
to directly counter the organizations suggests that the short-term
repercussions from a government crackdown are less of a threat than
allowing the group to continue unchecked. In the case of Falun
Gong, the organization's membership spread to all levels of the
government and military, undermining the authority of the Communist

In the case of the direct marketing groups, Beijing's motivation is
economic stability. China's economic reforms exposed the extent of
the underlying weakness in the economy. The reforms exacerbated the
social effects of that weakness by attempting to split state bodies
from their business empires and rapidly increasing the ranks of
unemployed. Under such conditions, direct marketing schemes can
accelerate the collapse of the already strained economy - as they
did in Albania - leading to widespread social upheaval.

Shutting down the direct marketing schemes, while likely triggering
a short-term backlash, pre-empts the potentially devastating
economic meltdown. Already dealing with internal splits, Beijing is
also trying to ensure that these groups, and others like the Falun
Gong, are not exploitable by factions within, or without, the
Chinese government.

(c) 2000, Stratfor, Inc.




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