Trading With ‘Friends’

The first thing Ming Yue does every morning is logging on her WeChat account, the ubiquitous Chinese social messaging service. It’s not rare for her to find that dozens of traders have added her as a “friend” overnight. 　

WeChat is transforming from being a messaging service into one of China’s busiest marketplaces. In March 2017, Ming became a senior agent of a WeChat food company, in charge of a team of roughly 200 commercial agents. Each day, Ming contacts her agents by WeChat or phone to promote the company’s products.　

WeChat business works through the “moments” function, where people can post things visible to all their “friends.” Successful traders accumulate huge numbers of friends, allowing them to reach a vast audience.　

Ming Yue’s first exposure to mobile commerce on WeChat was two years ago. Before that, she was a clerk at a factory in Wenzhou, Zhejiang Province. In September 2014, she began to sell clothes through WeChat and she resigned one year later to experiment with WeChat business, investing 58,000 yuan (US$8,500) into becoming an agent of the food company. She told NewsChina that within two weeks, she had recovered her initial outlay. As her agents and profits grew, she bought an apartment worth 700,000 yuan (US$103,000) and a vehicle that cost 200,000 yuan (US$29,500), transforming herself from a low-level white-collar worker into a successful entrepreneur almost overnight.　

“I was so lucky to get involved in WeChat e-commerce. It’s an area where hard work and small investments can always pay off. WeChat e-commerce, I think, is the fairest industry,” she said.　

WeChat e-commerce started in early 2012 when some small merchants began to promote products and services through Sina Weibo, China’s equivalent to Twitter, and their circles of “friends” on WeChat. Since 2013, WeChat e-commerce has been growing rapidly after it enabled online payments on its platform. In early 2014, some big brands and retailers began to open stores in WeChat and several months later, virtually everyone was able to set up a store within the app.　

Statistics from the Internet Society of China show that WeChat commerce reached a spectacular 95 billion yuan (US$14 billion) in 2014, employing more than 1,000 small traders. In 2015, the market size doubled.　

Since its inception, there has been no clear official plan for WeChat e-commerce and it was not until a development report on WeChat business was delivered during an Internet conference in 2016 that “business” was fully defined – WeChat e-commerce was officially termed as any person or enterprise that is involved in the sale of products and services through its mobile social platform.　

According to the Industry Report on WeChat E-commerce released by Beijing-based iResearch Consulting Group in 2017, the sales figures on WeChat hit 328.8 billion yuan (US$48 billion) in 2016, and are expected to hit 707 billion yuan (US$104 billion) in 2018.　

Cheng Xusen, director of the E-commerce Department at the University of International Business and Economics, said the explosive growth of WeChat business mainly stemmed from its vast number of users and their growing attachment to social networking. As China’s biggest and most popular online messaging tool, roughly 1.4 billion people have downloaded the app, including 889 million active users.　

“The market potential of WeChat business is spectacular,” he said, adding that it took only two years for WeChat to reach 10 million store owners and Alibaba’s Taobao, China’s main traditional e-commerce player, took 10 years to accumulate the same user base. In addition, Cheng argued that the instant profits and low cost of WeChat business contributed to its wild growth and the viral spread through people’s friends circles made it possible for traders to make a rapid profit.　

The cost of opening and maintaining a shop on Taobao is at least 2,260 yuan (US$330) per year at present including a deposit fee, webpage design and advertisements. Unlike Taobao, WeChat does not charge any fees or commissions to vendors running stores through the application.　
Cheng told our reporter that the low costs and lack of entry barriers in WeChat trade have made it increasingly popular among full-time housewives, people with disabilities and college students, making it a prime choice for start-ups.　

But there are plenty of people who are skeptical about WeChat trade. To begin with, the platform wasn’t intended for buying and selling – unlike Taobao, there are no controls or ratings to let buyers judge vendors, or overseers making sure the stores operate honestly.　

Lin Cai, head of the WeChat E-commerce Branch of the China Electronic Commerce Association, said the lack of regulation has allowed fraud, misleading advertising, and dishonesty to be sadly common. It’s hard for customers to fight for their rights if they’re cheated, he said, whether they never see the goods or get a low-quality delivery. The prevalence of fakes and poor after-sale service has seriously affected the shopping experience and trust of many customers.　

Lin added that another big problem with WeChat trade is the marketing and profit models. He said that there are several tiers of retail agents and each of them is working hard to develop their own subordinates which makes it hard for consumers to distinguish it from pyramid selling.　

Ming Yue told our reporter that she is often blacklisted by customers and she hates that her business is mistaken for pyramid selling. She presented the food safety certificates authorized by food regulators, production licenses and letters of authorization from the food company, saying that she would check the company information and certificates of quality in detail and sometimes personally test the reliability of the goods before she decided to sell.　

“Pyramid selling has brought severe negative effects to WeChat commerce and I have to prove all the time that we’re doing a decent job,” Ming said.　

“It is undeniable that some traders are engaged in pyramid selling, but that’s less than 20 percent of the whole,” Lin said, adding that many WeChat retailers develop their down-line agents, which is a violation of the anti-pyramid selling law.　

Cheng Xusen said that advertisements put up in the “moments” section of the app can only be read by WeChat friends, which is in marked contrast to dedicated e-commerce platforms. He argued a basic rule to distinguish WeChat commerce from pyramid selling is that for pyramid selling, goods are a tool to develop the down-line agents, and profits are gained by collecting entry payments, but WeChat e-commerce merchants gain profits simply by selling goods.　

As WeChat commerce grew, researchers and policymakers came to sniff out the bubble. “During the initial phrase of WeChat business, some store owners made great fortunes overnight, drawing a growing number of traders to join,” Cheng said.　

Nevertheless, he said because of the inherent problems of the WeChat business mode and tightening crackdown on illegal practices from Tencent, the parent company of WeChat, the bubble began to burst. Many people withdrew from the market and those who stayed are under pressure to change. 　

Taobao’s mobile shopping site is a very open system in which consumers can easily search for the products they want. WeChat stores, however, are a closed system, where people can only buy from the official accounts they follow. He suggested that WeChat shop owners cooperate with existing e-commerce websites and brick-and-mortar shops to carry out combined marketing campaigns. 　

“It will be a challenge for stores to transform the huge traffic of WeChat into sales numbers but because of the huge user base and the development of mobile commerce, I believe WeChat business can maintain a permanent and healthy development as long as a reasonable framework for regulation is unveiled,” Cheng said.　

Lin Cai told our reporter that many low-level WeChat traders didn’t strike it rich, and they began to seek wealth dishonestly by falsely trading or stockpiling goods. He said it is an inevitable stage for a new platform and mutual adaptation takes time. 　

In addition to the problems of WeChat business itself, the lack of regulations and supervision continue to affect the industry. In November 2015, the State Administration of Industry and Commerce proposed to bring WeChat business activities under its supervision, demanding to curb illegal marketing on WeChat, and saying it would study the new development in the sector before introducing the measures to supervise the industry. Nonetheless, the follow-up details of enforcement have yet to be released.　

Lin told our reporter that the WeChat E-commerce Branch of the China Electronic Commerce Association had negotiated with related government organs but as more than 20 million traders are involved and with the lack of any specific law or industry regulation, it is very difficult to supervise at a time when the law does not punish even repeat offenders.　

In January 2017, the WeChat E-commerce Branch released a draft of professional standards for WeChat business, seeking comment from the public. The standards seek to better define WeChat trading to distinguish it from pyramid selling, and to better protect the rights of consumers. Lin said the document is still under discussion and it will be some time before it is officially released. Lin suggested that the government take a flexible approach to supervision by encouraging the industry while tightening its supervision.　

“The sound development of WeChat business requires the guidance of the government and regulatory associations as well as the backing of media,” Lin said. “There’s an urgent need to introduce laws and regulations to change the public’s mistaken impressions of WeChat business and make it a new economic force for growth.”