Analysis: China Shines Regulatory Spotlight on Live Retail Boom

Live streaming sessions by Chinese streamers Li Jiaqi and Viya, real name Huang Wei, (left) are seen on Alibaba Taobao’s e-commerce app displayed on cellphones in this illustration photo taken December 14, 2021. Photo taken December 14, 2021. REUTERS / Florence Lo / Illustration

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  • Streaming Queen Viya Fined Over $ 200 Million For Tax Evasion
  • Viya’s fine size shows how lucrative the industry is – analysts
  • Direct sales have become a main buying channel in China
  • Trade seen at $ 423 billion in 2022, more than double in 2020 -McKinsey
  • Regulators stepped up monitoring after runaway growth

BEIJING / SHANGHAI, Dec.21 (Reuters) – The crackdown on China’s “common prosperity” has shone the spotlight on the country’s enormous e-commerce activity – highlighting the fragility of a burgeoning sales channel that some of the world’s biggest brands now rely on.

More than 100 million followers of Viya, dubbed the country’s “live streaming queen” by Chinese media and audiences, woke up on Tuesday to see her e-commerce and social media accounts shut down after she learned that she had been fined over $ 200 million for tax evasion.

The rise of celebrities teaming up with brands from L’Oréal (OREP.PA) to Unilever (ULVR.L) and Adidas (ADSGn.DE) to sell consumer goods in live online streams has made explode the area. Consulting firm McKinsey expects the world’s second-largest economy to trade at $ 423 billion next year, more than double the estimate for 2020, and larger than the economies of countries like the United States. Norway and Ireland.

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But it also led to an awkward tango for global players, having no choice but to partner with internet stars with the clout – until now – to make or break the sales campaigns of products. Some, like Viya, have even questioned the way sponsors like L’Oréal do business.

Beijing’s vow to be tough on tax evaders as it seeks to eliminate large income disparities at a time of slowing economic growth has taken many high-profile victims. But the magnitude of the fine imposed on Viya, a 36-year-old former singer whose real name is Huang Wei, and who once appeared on a stream with American reality TV star Kim Kardashian, far exceeds that of ‘other well-known cases.

“People were shocked to learn that live streamers make so much money,” said Liu Xingliang, chairman of the technology consultancy China Internet Data Center. “With such profitability, Viya’s company could be valued at 100 billion yuan ($ 16 billion) if it goes public.”

With Viya’s closest selling rival in terms of sales, Li Jiaqi – also known as “Lipstick Brother” – the two biggest stars in the industry are now seen as crucial for brands looking to place a product in. Daily evening live broadcasts on Taobao. , the online marketplace owned by the Alibaba Group (9988.HK).

Their influence has grown so much that the couple severed ties with L’Oréal last month in a public dispute after accusing the French cosmetics giant of failing to offer its viewers the lowest price on a facial product. L’Oréal then offered vouchers to settle the dispute.

L’Oréal did not immediately respond to a request for comment on Viya.

In a statement, Viya apologized for not paying her taxes but could not be reached for further comment. Li’s company told Chinese media on Monday that business operations were normal.

TRUST AND COMMUNITY

Analysts say live sales figures like Viya and Li appeal to Chinese consumers not just because they entertain or are able to negotiate big discounts for their viewers with the brands. Importantly, they were seen as a credible intermediary after past product quality scandals and counterfeit products left many wary of brand claims.

A typical follower is Liang Ye, a white collar worker from Beijing, who said she typically spent most of her evenings playing Li or Viya’s livestreams in the background. Her recent purchases include a Shu Uemura makeup remover oil and an Yves Saint Laurent lipstick.

“They sell things that are right for you,” she said. “For a face lotion, Li Jiaqi won’t vaguely say that it is moisturizing or anti-aging like most advertisements, he will recommend it to people of the right age with the right skin type.”

Unilever China President and Executive Vice President North Asia Rohit Jawa, who told Reuters the company has been working with live streamers, including Li and Viya since 2019, said the interactive element was its main attraction. Unilever did not immediately respond to a request for comment on the Viya case.

“Questions can be answered immediately and can be viewed, shared and commented on by others,” Jawa said. “There is a real sense of community and livestreamers have incredibly loyal fans… China definitely leads live streaming and is Unilever’s most advanced e-commerce marketplace in the world.”

GROWTH IN FACE WINDS

The fine imposed on Viya, however, comes after a series of warnings aimed at tightening practices in the sector and other sanctions imposed on some of its smaller peers – a sign that more headwinds could be in store.

The industry has seen a surge in the number of new personalities last year, in part due to the COVID-19 pandemic.

Last year, research consultancy iiMedia Research said there were more than 28,000 so-called multichannel network agencies in China, each tending to manage multiple online influencers.

But China’s internet watchdog first wrote rules last year – implemented on trial this year – to regulate the country’s direct marketing industry requiring internet platforms to better monitor their content and directing streamers to register with their real names.

Its trade regulator followed up with guidelines in August, saying live streamers should speak Mandarin and dress appropriately when promoting the product.

Other popular live streamers were also known to be investigated for tax evasion ahead of Viya’s punishment.

On November 22, the third most popular live streamer behind Li and Viya on Taobao, Xueli, was fined 65.55 million yuan for tax evasion, and her live streaming channel Taobao has since been suspended. She also disappeared from social media platforms.

Some analysts, however, have said the crackdown could even be good for brands, weakening the bargaining power of top live streamers and potentially sending traffic to their independent stores.

But for all the clouds surrounding the business, one thing remains certain: Brands will continue to seek growth through live streaming, and not just in China.

“On-line commerce has become a tabletop issue for successful consumer businesses in China and much of the rest of Asia,” McKinsey concluded in a report earlier this year, “and is spreading rapidly in Europe and in the United States “.

($ 1 = 6.3741 Chinese renminbi yuan)

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Reporting by Sophie Yu in Beijing and Brenda Goh in Shanghai; Editing by Kenneth Maxwell

Our Standards: Thomson Reuters Trust Principles.

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