How China's punishment of Viya has far-reaching consequences for live-streaming shopping

Chinese live-streaming stars Zhu Chenhui, aka Xueli Cherie; and Li Shanshan Sunny.
PHOTO: Weibo

China’s harsh punishment of Viya, one of the country’s leading live-streamers, by levying a record fine and erasing her online presence overnight will generate far-reaching consequences for Alibaba Group Holding and the new online shopping trend that has transformed e-commerce in the past few years, analysts say.

The online store and social media accounts of Viya, whose real name is Huang Wei, were wiped hours after the Hangzhou tax authority levied fines totalling US$210 million (S$286 million) on the live-streaming star, a record tax penalty for a Chinese citizen. It remains unknown whether the ban on Viya is temporary or permanent.

The move came after two other top influencers on Alibaba, Zhu Chenhui, known as Xueli Cherie, and Lin Shanshan, were also fined for tax evasion and removed from China’s online space a few days ago.

Such is the scale of the tax crackdown on these popular influencers – who can often sell in a few hours what it takes a shopping centre to do in an entire year – that some analysts are questioning whether Beijing actually wants to stamp out live-streaming e-commerce altogether.

“Viya’s case is a warning and an example for the entire industry,” said Cui Yanshuang, a Shanghai-based lawyer at law firm RICC & CO. “As the top live-streamers are [taken down], smaller live-steamers may have similar problems.”

Viya has been a key asset for Alibaba, owner of the South China Morning Post. On the first day of this year’s Singles’ Day festival on Oct 20, Viya and her team sold 8.5 billion yuan (S$1.8 billion) worth of goods in a 14-hour live-streaming session. The amount exceeded whole-year revenue at Wangfujing Group, one of China’s largest department store chains, in 2020.

The sales generated by Viya, Cherie as well as Lin Shanshan have been critically important for Alibaba when it comes to defending its position in online shopping against competitors such as Douyin, the Chinese version of TikTok, and short-video sharing platform Kuaishou.

Alibaba did not immediately respond to a request for comment on Tuesday.

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Live-streaming e-commerce has emerged as an exciting new form of online shopping in the past few years, and the 1.2 trillion yuan market has been growing at an annual rate of 197 per cent, according to a September report released by iResearch. Influencers like Viya play have been critical in guiding “traffic flows”, often key to deciding the final sales performance.

Superstars like Viya can generate huge fees for themselves, but the business operations around influencers can be opaque and controversial. This includes whether they should be taxed as individuals at the maximum income tax level of 45 per cent or whether they should be treated as an individual-owned business, where tax rates can often be much lower.

The “tax planning” measures adopted by people like Viya, including setting up shell businesses in places where local governments offer tax breaks, have been tolerated for years until this year, when China’s tax authority started to target this form of tax avoidance in the industry.

You Yunting, a senior partner at Shanghai DeBund Law Offices, said the government is trying to fix tax collection loopholes as it is under mounting pressure to boost revenue amid macroeconomic headwinds.

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China’s state media, including the People’s Daily , immediately hailed the Hangzhou tax authority’s fine on Viya as evidence that China’s tax laws are fair and effective.

The Central Commission for Discipline Inspection, the disciplinary watchdog of the Chinese Communist Party, published a long article on the matter, citing Central University of Finance and Economics professor Yu Wenhao as saying that the fine imposed on Viya and other top influencers showed that live-streaming was not a “blind spot” when it comes to taxation.

The disciplinary agency’s article said that Viya’s punishment was conducive to China’s common prosperity push, which is aimed at narrowing the country’s wealth gap. Ironically, Viya herself had been working hard to link up with China’s poverty alleviation efforts by selling farm products online for peasants. Viya even won a government award in October 2020 for her contribution to poverty reduction in China.

Chen Hudong, a researcher at e-commerce consulting firm 100ec.cn, said aside the tax crackdown, there are still a lot of unknowns in terms of how the live-streaming industry will be regulated in future.

“One big reason [for the crackdown] is that it [live-streaming] has become the vampire of the real economy,” said Chen.

This article was first published in South China Morning Post.

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