The COVID-19 lockdowns forced people to do most of their shopping online. This situation catapulted China’s livestream industry and turned it into a key medium for brands to promote their products online and for consumers to have more interactive and immersive experiences.
According to a 2021 iResearch report, the total revenue of China’s e-commerce livestream sector is projected to reach RMB 1.2 trillion (US$180 billion) in 2022, with a total of 660 million viewers. This figure is expected to keep growing to RMB 4.9 trillion (US$720 billion) in 2023. This will account for 11.7% of total e-commerce sales in the country, giving the economy a much-needed booster.
The e-commerce platform Alibaba’s Taobao Live dominates livestream, with 68.5% of consumers, followed by Douyin and Kuaishou. Other major Chinese internet players like JD.com and Baidu are pushing to expand their presence in the market.
Given its size and potential growth, the government of Shanghai published last July the Compliance Guidelines for Live Streaming Marketing Activities, implemented since the date of promulgation, to regulate the sector.
The Guidelines are limited to livestreaming marketing activities carried out in Shanghai. This refers to the sales promotion of goods or services in the form of livestreaming by video or audio, with photos and words or a combination of multiple forms through Internet websites, applications, and mini programs, among others.
Livestream became increasingly popular with consumers in the past few years because it offers an interactive way of shopping. A typical livestream session, which can be accessed to in mobile devises, gives the host, promoting a product or service, the opportunity to answer questions from the audience in real time.
Bored with simply scrolling through websites, online shoppers feel attracted by the entertaining characteristics of the interactive experience that livestreaming provides. Livestream has become part of Chinese people’s online shopping routine, especially among young audiences.
Another appealing aspect is the lower prices, since livestream platforms often promote products directly provided by manufacturers, as well as time-limited discounts or coupons, raising the attractiveness of this experience.
For companies operating in Shanghai, the guidelines state that a live marketing platform shall formulate and publicize its livestreaming marketing management rules in accordance with the law, strengthen the ecological management of livestreaming marketing, and fulfill the platform management responsibilities.
An in-platform operator selling goods or services through live streaming shall comply with the platform rules and cooperation agreements, continuously publicize its business license and other information, carry out marketing and livestreaming activities in compliance with laws and regulations, and fulfill an e-commerce operator’s responsibilities in accordance with the law.
According to the guidelines, a livestreaming room operator shall comply with the platform rules and cooperation agreements, shall not require any in-platform operator to sign any unreasonable mandatory exclusive terms, conduct quality control, compliance management and anchor management, and carry out the standardized construction, content audit and violation disposal for live streaming marketing activities in accordance with the law.
In 2020, China had more than a million “professional” livestream hosts working in the industry, compared with fewer than 250,000 in 2019. Practically anyone that registers with the local industrial and commercial bureau can open an account to promote their products. This enables small businesses to participate in a larger market.
Institutional marketing companies hire and pay millions to popular livestreamers. Some of them are even endorsed by the government as innovators and job creators. They can facilitate millions of dollars’ worth of online purchases in one night, giving them great power over sellers and buyers.
According to a McKinsey analysis, the most popular livestream product categories are led by women’s fashion, followed by cosmetics, food, electronics, and home goods. In terms of gross merchandise value, big-ticket items such as computers and large home appliances lead the pack.
In the livestreaming marketing activities, the Shanghai guidelines state that an anchor shall regulate his/her own behavior such as dress and language, fulfill the agreement with in-platform operators to carry out livestreaming, release information on goods or services in accordance with the law and avoid misleading consumers.
The Guidelines stipulate that no livestreaming shall be used to promote or provide goods or services that are prohibited from trading or prohibited from online trading by law or administrative regulations, and that livestreaming marketing shall be conducted cautiously.
However, the booming livestream e-commerce sector has become increasingly homogenous and crowded, lacking products that can get people’s attention and stand out.
In this regard, the Guidelines list compliance requirements such as prohibiting malicious marketing, ensuring fair competition, banning false promotion, regulating advertising, clearly marking prices, regulating promotional activities, protecting intellectual property rights, protecting minors and the elderly, and safeguarding consumers’ right to know and choose.
In the past years, the Chinese government has pushed to regulate the livestream sector. Several popular livestream hosts stopped their activities due to inappropriate or illegal behavior.
Regulations hold livestreamers accountable for product quality control, proper reporting of sales numbers, and minors’ participation in livestreams. Last June, the Code of Conduct for Online Streamers (the Code) was released, listing 18 guidelines and 31 categories of prohibited content, which range from violence and self-harm to showing off wealth.
The Code emphasizes the importance of upholding correct political values and positive social values. It requires livestreamers in professional fields such as law, medical, education, and finance to obtain relevant qualification and approval from streaming platforms.
There are positive and negative aspects to livestream e-commerce. It can increase a brand’s appeal and pull in additional web traffic, which leads to more consumption. It can also revive offline merchant management, particularly the supply chain. Online sales depend on back-end resources integration. Excellent supply chain management is key to the successful operation of livestreaming by anticipating sales, ensuring smooth procurement, and providing timely shipments.
On the negative side, it can promote sales of counterfeit goods and false advertising. Poor product quality has a fatal impact on the company. Ensuring the rights and interests of consumers is critical to succeed in the sector.
Lately, the industry has become highly competitive. Approximately 60 percent of livestream hosts are forced to leave the industry after less than a year.
Foreign companies in China interested in exploiting the potential benefits of livestreaming, should keep UpToDate with the latest regulations affecting the industry and future changes in this regard.
To learn more about our services in China, contact our Head of Business Advisory - Ms. Kristina Koehler-Coluccia at kristina@woodburnglobal.com.
DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.