Misleading mooncake ads, vulgar content: China’s influencer network firms face regulatory clean-up

By The Straits Times | Created at 2025-01-18 11:00:56 | Updated at 2025-01-18 18:41:32 8 hours ago

BEIJING - The fall of one of China’s top influencers has triggered a clean-up of an industry that has gained attention for unethical profit-making behaviour.

Mr Zhang Qingyang, better known as Crazy Brother Yang on Douyin, was 2024’s fourth-ranked internet celebrity in China by net income, taking in nearly 1.9 billion yuan (S$355 million) that year.

But in September 2024, the influencer network company he co-founded, Three Sheep, got into trouble when the firm’s live-streaming hosts hawked mooncakes supposedly made in Hong Kong under the Meicheng brand.

Sold at 169 yuan for three boxes, the snacks were described as “high-end” and said to be sold at as much as 700 yuan a box in Hong Kong. But there were in fact no brick-and-mortar shops selling Meicheng mooncakes there, and these were actually made in mainland China.

On Sept 26, Three Sheep was fined 68.9 million yuan for false advertising, and ordered to suspend its business. Amid the public outcry, the company apologised and said it would do a “comprehensive internal rectification”, and Mr Zhang has not reappeared online since.

The fallout has continued.

Now, the authorities are targeting companies like Three Sheep, known as multichannel networks (MCNs), which help online content creators to plan content as well as market their channels, in exchange for a cut of their profits.

Draft regulations issued on Jan 10 by China’s internet regulator, the Cyberspace Administration, stated that MCNs must not help their contracted online accounts spread rumours, fabricate data such as views, “hype up” topics to mislead the public, among other things. The public can submit feedback on the draft until Feb 9.

Influencers will also be required to publicly declare which MCN companies they work with – a move meant to increase transparency for consumers, as live-streamers often sell products from their MCNs. Social media platforms must establish reporting channels for complaints about MCNs and handle these concerns “in a timely manner”.

While MCNs have been targeted in previous regulations, the latest draft rules were the first to be dedicated to the regulation of such companies as they have become more powerful, noted Associate Professor Jian Xu from Deakin University in Australia.

There are an estimated 28,000 MCNs in China in 2021, up from just 160 in 2015.

Among the most successful of these companies was Three Sheep, established in 2021. Their global headquarters building in Hefei, bought in 2022, had cost over a hundred million yuan.

It grew from selling snacks with free shipping for 9.9 yuan to more expensive home appliances such as massage chairs and Bluetooth speakers. Three Sheep reportedly sold 16 billion yuan worth of merchandise in 2023.

Prof Xu, who studies internet governance in China, said the regulation will pose more scrutiny and regulation on the live-streaming industry and make the field more sanitised.

China’s live-streaming industry remains highly-profitable, with some 1.1 billion internet users, although consumers have become more cautious about spending in a slowing economy. Research institutions put the size of the live-streaming e-commerce market at 4.9 trillion yuan in 2023, a year-on-year increase of 35 per cent.

But MCNs have made the news over the past year, sometimes for outright deceitful behaviour to profit from online traffic, adding to growing calls for regulation.

In December 2024, 11 Douyin accounts under an MCN called Dahaixingchen were banned from posting content and had their profit-making rights suspended for 30 days. Douyin said the MCN had manipulated accounts to publish “vulgar content”.

Dahaixingchen, which has more than 500 online hosts under its umbrella, had reportedly required its female influencers to wear tight-fitting clothes and shoot dancing videos in order to quickly gain online fans.

In June 2024, the Jiangxi police probed one MCN agency and found that it had used artificial intelligence to generate up to 7,000 false articles a day across hundreds of accounts, earning thousands of yuan a day from the online traffic. One article fabricated news of an explosion in Xi’an that had caused widespread damage.

Mr Wang Rui, co-founder of Zhengye Internet Celebrity Finance and Taxation, a Hangzhou-based consultancy, said the new regulations will have little impact on established MCNs, which will not actively break rules.

“More affected are some small MCNs that have just started, which are still fighting for survival and will take risks out of desperation,” he told Chinese media on Jan 13.

But regulation can also stifle creativity. Three Sheep had gained fans rapidly, in part thanks to its over-the-top antics as well as product testing on live-stream, combining entertainment with advertising.

Prof Xu said: “Regulation is always a double-edged sword. It can help clean up the unethical and chaotic profit-making behaviour in the live-streaming industry, at least in a short period of time.

“But over-regulation may also increase compliance burdens on MCNs and content creators, cause homogenisation of content, and harm creativity and innovation.”