Brenda Goh and Sophie Yu

BEIJING/SHANGHAI – China’s ‘common prosperity’ crackdown has placed a severe spotlight on China’s huge livestream ecommerce business. It highlights the vulnerability of a growing sales channel on which some of the biggest brands around the globe have grown to rely.

Viya is a popular Chinese livestreamer who has been dubbed China’s queen of livestreaming. Viya’s social media and online accounts were shut down on Tuesday after she was informed that she had been penalized for more than $200m in tax evasion.

It has been an explosive sector due to celebrities teaming up with major brands like L’Oreal, Unilever (NYSE :), and Adidas (OTC :). They sell consumer goods online via live streams. McKinsey Consulting estimates that the global trade will be worth $423billion next year. This is more than twice the 2020 estimate and much larger than other countries such as Norway or Ireland.

However, it also created an awkward tango among global players with no other choice than to partner with internet celebrities with the clout to decide whether or not product sales campaigns are successful. Viya and others have challenged L’Oreal’s ways of doing business.

Many high-flying people have been harmed by Beijing’s promise to crack down on tax avoiders as it seeks out to reduce income disparities during slower economic growth. The fine Viya paid, an ex-singer, aged 36, who was once on stream alongside U.S. reality television star Kim Kardashian is far more severe than other cases.

President of China Internet Data Center, tech consulting company China Internet Data Center Liu Xingliang said that “people were shocked to discover livestreamers make such a lot money.” Viya’s business could have a value of 100 billion Yuan (16 billion dollars) if it goes public.

Viya and Li Jiaqi, Viya’s nearest-selling competitor by sales – otherwise known as “Lipstick Brother” – have become the stars of this sector. They are crucial to brands looking to place a product on Taobao’s daily livestreamed shows. Alibaba (NYSE:) Group.

The pair have grown in power so much, that last month they severed ties with L’Oreal after accusing the French cosmetics company of failing to offer their customers the most affordable facial products. L’Oreal offered to give the customers shopping vouchers in settlement.

L’Oreal has not yet responded to my request for comments on Viya.

Viya released a statement apologizing for her failure to pay taxes. However, she could not reach Viya for any further comments. Chinese media was told by Li’s company that business operations were as normal Monday.

TRUST and COMMUNITY

Analysts believe that livestreaming sales personalities such as Viya or Li are appealing to Chinese customers not just because they can negotiate high discounts for their viewers but also because of the entertainment value. After past product quality scandals that led to the sale of fake products, many were skeptical about brand claims.

Liang Ye is a Beijing white collar worker who says she spends her nights watching Viya or Li’s livestreams. She recently purchased a Shu Uemura cleanser oil and a Yves Saint Laurent lipstick.

She said, “They sell products that fit you.” Li Jiaqi doesn’t say that facial lotions are moisturising and anti-aging as most advertisements. He will only recommend them to the people who have the correct skin type.

Rohit Jawa (Unilever China’s Chairman and North Asia Executive Vice President), who said to Reuters that the company had been working with livestreamers like Li and Viya from 2019, stated that the main attraction of the platform was the interactive aspect. Unilever did not immediately reply to our request for comment regarding the Viya case.

Jawa stated that questions can be answered instantly and shared, commented and shared by other users. “There’s a real sense of community and livestreamers have incredibly loyal fans … China definitely leads the way in livestreaming and is Unilever’s most advanced e-commerce market globally.”

GROWTH WITH HEADWINDS

Viya’s fine comes after Viya received a string of warnings about the sector, and some punishments against her peers who were smaller. It is an indication that Viya could face more headwinds.

Due to the COVID-19 pandemic, the industry witnessed a dramatic increase in the number and quality of personalities in last year.

Research company iiMedia Research stated last year that China had more than 28,000 multichannel network agencies. These agencies manage many online influencers.

China’s Internet Watchdog has drafted new rules last year to govern the livestreaming industry in China. These regulations will be tested this year and require internet platforms to monitor more content.

In August, the commerce regulator issued guidelines stating that live streamers need to speak Mandarin and wear appropriate attire when advertising products.

Others were known to have been under investigation by tax evasion authorities prior to Viya being punished.

Xueli was penalized 65.55 millions yuan (65.55 million yuan) for tax evasion on Nov. 22. Her Taobao stream has been stopped ever since. She also vanished from all social media sites.

However, some analysts believe the crackdown may even benefit brands by weakening bargaining power for top streamers, and potentially driving traffic to self-operated shops.

Yet, in spite of all the cloud surrounding the business, it is certain that brands will seek to grow via livestreaming. And not only in China.

McKinsey stated that live commerce is now a key part of successful companies in China, much of Asia and other parts of Asia. He also noted that it was rapidly expanding to Europe and the United States.

($1 = 6.3741 renminbi)