Social Responsibility Analysis on China's Influencer Economy

China’s influencer industry has seen robust development in recent years. Influencers or key opinion leaders (KOLs), who mainly are online content creators, vloggers, and livestreamers, are transforming the way marketing is done.

Specifically, KOLs build up and monetize their social media influence by boosting sales of certain brands or products. Such a marketing strategy has now expanded and is forming a full industry chain, involving influencers, internet platforms, and multi-channel network (MCN) companies, which are media agencies that support and train content creators. ASKCI Consulting has seen two main business models in China’s influencer market, which are presented in the following graphs.

Influencer Economy in China

According to a report by iResearch, the influencer related economy has an estimated value of over RMB3.5tr in 2019, which is projected to exceed RMB6tr in 2023. The industry has gone through several major stages in China, with a booming development that took place around 2015. The expanded internet coverage since 2015 created opportunities for independently operated social media accounts, as well as short video creators. In 1H19, the expansion of livestreaming and short video platforms, such as Douyin and Kuaishou, further pushed the growth of e-commerce businesses that implemented influencer-marketing strategies. China’s MOFCOM recorded over 4m livestreaming sessions in 1Q20 and approximated the country’s live-streaming e-commerce market size to be more than RMB900bn.

Existing issues in the influencer economy resulted from market players’ failures in social responsibility

With more e-commerce companies are employing livestreaming promotion and influencer marketing in recent years, the sector has experienced an increasing amount of social capital concerns, such as misleading consumers with false information, selling low-quality goods, faking traffic and sales volumes, etc. Specifically, due to information asymmetry in the e-commerce industry, buyers may not fully communicate with sellers to understand product quality. Meanwhile, some online merchants and influencers tend to exaggerate product characteristics to attract attention or reduce cost by selling fake products and offer inadequate after-sales services.

The issues will unavoidably cause consumers to lose trust in e-commerce retailers and thus hinder the industry’s sustainable development. More recently, on November 22, China Consumers’ Association concluded some issues with a high frequency of occurrence when consumers shopped online from October 20 to November 15. Issues included inflated order volumes and the exaggerated number of livestream viewers, as well as unreasonable refund policies.

Additionally, increasing e-commerce businesses tend to engage in “click farming”, which is a form of fraud to inflate visits, reviews, and sales on online shops so that they may have more exposure to consumers and receive higher ratings. “Click farming” has become a process involving click fraudsters taking orders from e-commerce platforms, hiring workers to visits online sites and placing faked orders and ratings, and so on. Some e-commerce influencers also employ “click farming” to boost publicity. However, according to Sina Tech, such acts not only generate little actual economic value but also violate China’s Anti-Unfair Competition Law. Specifically, small online retailers could falsely trust influencers with inflated publicity and generate great losses, which could hinder live-streaming e-commerce development.

Chinese regulators are implementing policies to correct social issues in the influencer market

In view of the rapid development of the influencer-driven economy, Chinese regulators have made continued efforts to optimize the legal framework regarding the industry and to improve the e-commerce business environment. A series of campaigns and policies have been launched to eliminate the aforementioned irregularities and improve the social responsibility of KOLs, internet platforms, e-commerce businesses as well as MCNs. For instance, the Cyberspace Administration of China (CAC) is currently looking for public comments on newly released administrative rules to tighten governance on livestream marketing. The rules forbid livestreamers from publishing false information to mislead users, faking transaction and viewing volumes, and so on. On November 1, China’s National Radio and Television Administration (NRTA) issued a notice, asking hosts in livestreaming sessions to take on social responsibility and prioritize consumers’ interests during November’s online shopping festivals, banning them from employing exaggerated advertisements.

Prior to the regulations, On June 5, eight department agencies launched a six-month campaign to crack down on unlawful practices in the live-streaming industry. The agencies have issued warnings and penalties on 44 internet platforms for spreading unhealthy content. Following the campaign, on June 24, China Advertising Association (CAA) offered clearer definitions for market players such as sellers, livestreaming hosts, and platforms, influencer incubators, etc. CAA also issued rules barring the engagement in “click farming” to fabricate transactions and ratings.

Conclusion and Suggestions for China’s Influencer Economy

Presently, the intention of some KOLs, e-commerce businesses and platforms, and MCNs to generate short-term profits, rather than long-term sustainability, could disrupt the industry from steady, straightforward growth. This requires market players beyond business entities such as the government, to step up efforts to improve the market environment.

To strengthen regulations on the influencer industry, the Chinese government could issue more targeted policies to enhance market players’ social awareness. Specifically, tightened governance and strict penalties should govern e-commerce platforms, preventing them from engaging in “click farming” and other forms of unfair competition. In particular, for the live-streaming powered e-commerce market, regulators could implement more measures to promote merchants to prioritize product quality and improve after-sales service systems.

From the perspective of online livestreaming services providers, they could leverage their technologies to strengthen content management, eliminating unhealthy information on their platforms. Online e-commerce marketplaces shall perform their responsibility to screen out unlawful practices such as faking transactions and to shut down the livestreaming accounts of KOLs who commit violations.

For instance, since 2016, Alibaba’s [BABA:US] Taobao Live, the livestreaming platform for Taobao merchants, has stepped up efforts to crack down on “click farming”. Meanwhile, JD.com [JD:US] and Douyin have both established mechanisms to identify data fabrications. Moreover, influencers should also avoid exaggeration of product characteristics when marketing certain products. Meanwhile, MCNs also need to take on social responsibility by offering assistance in building up influencers’ professional skills and creating a more ethical environment.

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