A Chinese market regulator has started a pyramid scheme investigation into Ting’s Secret, an online cosmetics brand founded by Taiwanese celebrity couple Zhang Ting and Lin Ruiyang, continuing China’s crackdown on e-commerce related malpractices.
Why it matters: Zhang and Lin are the latest celebrity influencers to get caught up in the broad crackdown that first targeted e-commerce giants but is now extending to illicit practices of individual influencers, who increasingly wield as much power as platforms.
- China’s recent e-commerce influencer crackdown has affected top livestreamers including Viya, Zhu Chenhui (also known as Cherie), and Lin Shanshan.
- Chinese social e-commerce sites that adopt a decentralized network of members to sell products are under increased scrutiny from Chinese authorities wary of potential pyramid schemes and tax evasion.
Details: The Market Regulation and Monitoring Administration of Yuhua District in Shijiazhuang said that it had launched an investigation in June into Shanghai Dowell Trading, the operator of Ting’s Secret, in a Dec. 23 letter quoted by local media The Economic Observer.
- The regulator has frozen company assets worth RMB 600 million ($94 million). The move was in response to reports (in Chinese) by a non-governmental anti-scam organization on Dowell’s alleged use of pyramid schemes.
- Shanghai Dowell Trading said in a Wednesday response that “it is a legally operating company” and “welcomes authorities to help check their risks.” “The company is operating normally and will cooperate with relevant departments,” the statement said.
- Shanghai Dowell Trading has the three characteristic features of a pyramid scheme, Li Xu, the founder of the anti-scam organization, told The Economic Observer. Li highlighted the multi-layered management structure and that members must pay a fee or purchase products to join and that their income depends upon the number of members they recruit.
Context: Founded by the Taiwanese actor couple in 1996, Shanghai Dowell Trading sells cosmetics and skincare products, mainly through online channels. It promotes its business through social messaging tools like WeChat and livestreaming platforms such as Taobao Live and Douyin.
- Shanghai Dowell Trading was once an acclaimed taxpayer in Shanghai’s Qingpu District, contributing RMB 2.1 billion in 2018 alone. In addition to TV actors Zhang and Lin, the company also has had several celebrity shareholders and endorsers, including actresses Lin Chiling and Tao Hong.
- Over the past few years, Chinese regulators have hit social e-commerce companies with a series of fines, including Peanut Diary and Nasdaq-listed Yunji for their use of pyramid schemes.
- China’s livestreaming boom has drawn in numerous celebrities—such as actors and singers—seeking to monetize their fanbases. The current round of crackdowns is part of Chinese authorities’ push to remind the public that the internet is not outside the law.