The Big Sell | Tamed livestreamers and Tencent stake cuts

Chinese regulators extended the clampdown on top-earning influencers in the past month by tightening scrutiny over e-commerce sales stars such as “livestreaming queen” Viya and “lipstick king” Li Jiaqi, along with “the godmother of WeChat commerce” Zhang Ting. Tencent shed large stakes in both online retailer JD and Singapore’s SEA, owner of Shopee—possibly in response to mounting pressure from antitrust regulators. Job cuts among Chinese tech giants extended from video app Kuaishou and fashion e-commerce site Mogu. Inc., to online grocer Dingdong Maicai and fresh produce service Meicai. Cross-border e-commerce titan Globalegrow and online luxury seller Secoo fell from grace. And Alibaba overhauled its domestic e-commerce business.

1. Viya and other top e-commerce influencers tamed

News: Taxation authorities in Huangzhou municipality in Zhejiang province imposed a RMB 1.34 billion ($210 million) fine on China’s top livestreamer Viya for tax evasion on Dec. 20. Viya’s social media accounts on all mainstream platforms such as Weibo, Douyin, and Taobao Live, where she had more than 120 million fans, were erased from public view overnight. Four days later, Li Jiaqi, another top livestreamer and a sales rival of Viya, was summoned by Zhejiang Consumers Council for questioning over various unregulated practices. Meanwhile, on Dec. 23, the Market Regulation and Monitoring Administration of Yuhua District in northern China’s Shijiazhuang city opened a pyramid scheme investigation into Ting’s Secret, an online cosmetics brand founded by Taiwanese celebrity couple Zhang Ting and Lin Ruiyang.

Insights: The recent fines of and investigations into top celebrities and livestreamers signal that Chinese authorities are expanding their crackdown on the illicit e-commerce practices of individual influencers, who increasingly wield as much power as platforms. Similar to the $2.8 billion fine imposed on Alibaba for antitrust violations last April, punishment of the most prominent figures is regarded as a warning for everyone in related fields to fall into line. In the wake of Viya’s fine, more than 1,000 livestreamers stepped forward to pay back taxes. The crackdown on top influencers may offer growth opportunities to hosts with small and medium-sized followings, given that the demand for brands to sell and consumers to purchase products through livestreaming is still growing. Also, tighter reins on high-income individuals come at a time when Beijing is beefing up its “common prosperity” initiative to redistribute wealth in the country.

News links: CNN, Global Times, TechNode

2. Tencent slashes shares in JD and Shopee-owner SEA

News: Tencent plans to reduce its shareholding in online retailer JD from 17% to 2.3% by selling interim dividends to shareholders, making it no longer JD’s top shareholder. Both Tencent and JD said their business partnerships wouldn’t be affected by the shareholding change. On Jan. 5, Tencent further unloaded 14.5 million shares in Singapore SEA, owner of Southeast Asian online retailer Shopee, for $3 billion. The Chinese tech giant dropped its stake in SEA from 21.3% to 18.7% and plans to further cut its voting stake in the company to less than 10%.

Insights: Tencent’s share sale drummed up expectations that the firm and other tech peers may shed holdings in their portfolio companies as Beijing takes a closer look at the extensive reach they have on China’s internet. Since Tencent has been one of the most active Chinese investors over the past few decades both inside and outside China, its portfolio now includes vertical giants such as JD, Pinduoduo, Bilibili, Meituan, and Didi. A Tencent tie-up has been an invaluable endorsement for startups, bringing them easy accessibility to various services under the Tencent umbrella from the likes of WeChat to hit games. 

So what’s at stake in the share reductions? They raise concerns that existing partnerships will change. Tencent said in its statement about the JD share distribution that it invests in companies to “help fund the development and expansion [of their portfolios]” and exits the investment when the company is “consistently capable of self-financing their future initiatives.” 

In the case of SEA, Tencent may have been merely seeking financial returns, according to sources from Chinese media outlet Caixin. Nonetheless, cutting ties with Tencent would help SEA, long regarded in Southeast Asia as a Tencent agent outside China, to ease regulatory risks it faces in foreign markets, a Caixin source said. 

Tencent might further reduce its shares in other Chinese tech companies, but the shareholding change won’t affect their strategic partnerships, Aron Li, an analyst at Tiger Brokers, told TechNode. Regardless, share prices of JD, Pinduoduo, and Bilibili dipped on the news. Similarly, the resignation of Alibaba CEO Daniel Zhang from the board of Weibo is being interpreted as a signal that Alibaba is cutting its ties with the Twitter-like super app.

News link: TechNode, Reuters 

3. Layoff rumors shake e-commerce unicorns

News: On Dec. 22, Tencent-backed fashion commerce site Mogu Inc., more widely known as Mogujie, was reported to be laying off more than 30% of its staff, mainly from the company’s tech department. This was followed in early January by reports that Kuaishou had launched a new round of layoffs, with 10%-15% of positions in the e-commerce team losing their jobs. Adding to the wave of reported layoffs was news of job cuts in the fresh produce and grocery industry. Last week, Chinese restaurant produce supplier Meicai cut another 40% of its staff after halving its workforce in September last year,while Dongdong Maicai was reportedly planning a sweeping layoff as well. The latter denied the news, saying that any personnel moves were simply a “normal adjustment” within the company.

Insights: Job cuts have mounted in China’s tech sector over the past few months after a tumultuous year in which Chinese regulators rolled out a series of measures to rein in the industry. E-commerce platforms have not been exempt from such scrutiny. Although they sell different product lines, both Mogu and Kuaishou have bet on livestream e-commerce to drive revenue. Regulatory headwinds for live commerce make that a difficult task, especially for smaller players who also face rivalry from incumbents like Alibaba-backed Taobao Live and ByteDance’s Douyin. Layoffs at Dingdong Maicai and Meicai underline the further cooling of China’s online grocery craze which last year witnessed a slew of casualties such as Tongcheng Life and Shixianghui. Even the once deep-pocketed players like US-listed Dingdong and Meicai are feeling the chills of market consolidations.

News Link: TechNode (Story 1, Story 2, Story 3, Story 4) 

4. Collapse of Chinese vertical e-commerce giants Globalegrow and Secoon 

News: Cross-border e-commerce giant Globalegrow is entering clearance procedures after filing for bankruptcy in June 2021. Valued at RMB 40 billion in 2017, the company racked up more than RMB 3.3 billion in debts as of 2020. Separately, Chinese online luxury retailer Secoo filed on Jan. 5 for bankruptcy and restructuring in Beijing No.1 Intermediate Court, data from China’s corporate intelligence site Tianyancha showed. However the company subsequently denied the bankruptcy reports to local media and revoked its bankruptcy application on January 6. Shares of the Nasdaq-listed company are trading at $0.38 per share with a market cap of $27 million. That’s more than 96% from an all-time cap high of $770 million in 2018.

Insight: While some are still struggling to stay afloat, an increasing number of former heavyweights in the e-commerce sector are falling from grace. Both Globalegrow and Secoon are among the early bellwethers. With more than a decade of history, the pair had led the country’s cross-border e-commerce and luxury e-commerce sectors, respectively. Globalegrow’s asset-heavy approach in running cross-border business with substantial product inventory and lots of locations and warehouses collapsed during the pandemic. The company reported around RMB 3 billion in losses in 2020, whereas it recorded an RMB 710 million net profit in 2017. In contrast, Secoo has faced a years-long decline even though it has outlived many of its early-stage competitors. Jing Daily attributes the fallout to over-diversification, an issue that has led to the failure of many former tech giants including Leshi.

News link: Jiemian (in Chinese), NetEase Tech (in Chinese)

5. Alibaba restructures back-end operations of Taobao, Tmall

News: Alibaba announced on Jan. 7 a major organizational reshuffle aiming at connecting the back-end operations of its core retail marketplaces Taobao and Tmall. Led by the company’s head for domestic business Turdy Dai, three operation centers were set up to focus on platform strategies, user expansion, and development for merchants.

Insights: Alibaba is further integrating its C2C online marketplace Taobao and B2C platform Tmall as the company seeks to realign its two cornerstone services to create more synergies. As consumer growth is reaching a ceiling in China, Alibaba is hoping the move will reinforce its commitment to enterprise-facing services. In addition to aiming to improve consumer experience, the change is intended to offer a streamlined path to convert small and medium-sized individual merchants on Taobao into enterprise clients on Tmall. The aim is to assist the development of these smaller sellers while keeping them within the Alibaba ecosystem. Breaking barriers between the two services should also cut costs and improve organizational efficiency within the company. Tmall, formerly known as Taobao Mall, was spun off from Taobao in 2011 to address different user demands.

News link: TechNode