China thinks Nu Skin might be a pyramid scheme
These days if you want to cover MLM news, being proficient in English alone just doesn’t cut it.
After getting my ass kicked by Spanish and Portuguese all week covering TelexFree, now reports from China (in Chinese) are filtering in slamming Nu Skin’s marketing practices there.
Criticism of Nu Skin’s business operations in China are nothing new, but now government officials are starting to take notice.
Following an investigation by a Xinhua News reporter, China’s State Administration for Industry and Commerce has instructed “local authorities” to ‘investigate media reports that allege Nu Skin distributes false information and conducts illegal business in China‘.
The Nu Skin investigative report was first published by Xinhua on January 15th. The report opens with what appears to be a Xinhua reader letter to the editor, asking them about Nu Skin after a family member got involved.
The reader is concerned because the family member “sold their house” to start their career in Nu Skin.
Other MLM marketing red flags in the report include
- claims by Nu Skin affiliates that potential recruits can “earn one million in six months”
- false claims about a “Government Work Report” from 2007 citing direct marketing as “the best career opportunity” for Chinese citizens
- the use of claims by “China Direct Selling Association”, who are based out of Hong Kong and not registered with the Chinese government as a social organisation
- potential affiliates being told they “need to purchase” a specific number of Nu Skin products if they wish to join
- Nu Skin affiliates marketing 104 types of products, despite Nu Skin only having approval to market 20 or so types of products by the Ministry of Commerce
- a Nu Skin brochure claiming the company has a Scientific Advisory Group, citing names of “Chinese professors” who have had nothing to do with the company for years (at least one is now retired)
- false marketing claims citing “Science Magazine” studies from 1999 and 2009 reports that purportedly mentioned “gene reset” technology
- false claims that Nu Skin has been advertised on “twenty-six Chinese television stations”
- Nu Skin using an article in the People’s Daily newspaper that was clearly marked “paid advertisement”, as government endorsement of their business model
Then on January 14th, the Xinhua reporter attended a Nu Skin event “on the outskirts of Beijing”:
The reporter found nearly 2 million people gathered from Taiyuan, Shijiazhuang, Tianjin and other places, flashing lights and making a thunderous sound.
The conference included recognition of elite Nu Skin affiliates, on-site interviews and other activities.
These elites were brought up onto a podium and led the audience to roar loudly and chant (Nu Skin) slogans.
The audience of nearly 2 million people chanted to a drum beat in a fanatic atmosphere.
Not surprisingly, when the Xinhua reporter approached politics and law professor Hu Jiang for comment, he suggested the Nu Skin conference employed “mind control” techniques designed to “brainwash” attendees.
Through the implementation of brainwashing, (Nu Skin) team members will gradually change, as too will their social and self-awareness towards the values and code of conduct pushed by the conference’s organizers (propaganda).
In particular, he stressed that conference attendees lost their sense of self-awareness and social awareness.
Organizers’ claims that attendees always maintain “freedom of choice” is just an excuse to evade legal sanctions (against Nu Skin).
A subsequent report published by Xinhua on January 16th accused Nu Skin’s business model of violating Chinese law, because new recruits are told to buy “at least 500 yuan of products” to be “promoted to Team Elite” and “earn commissions”.
According to “legal professionals” Xinhua reporters consulted, the above breaches “Chapter II Article VII of the second Prohibiting Pyramid Schemes” law, which prohibits companies from charging fees to participants of income opportunities (however disguised), to earn commissions.
Nu Skin affiliates have also been caught out telling potential recruits that if they recruit seven new affiliates (who each pay 500 yuan a month), they are “guaranteed” to earn “no less than 10,000 yuan a month” in commissions.
Other Nu Skin affiliates told Xinhua reporters that while Nu Skin might not “guarantee success”, if they followed their “systematic approach” (formulate plans, attend meetings and listen to CD audios daily), that they would personally “guarantee their success” in Nu Skin.
When Xinhua asked these affiliates about the “success ratio” of participants, Nu Skin affiliates “evaded the question”.
As a result of the above reports, Chinese regulators are now investigating Nu Skin on suspicion it is “distributing false information” and “conducting illegal business” in China.
Here’s the thing though… nothing gets published by Xinhua without explicit Chinese Communist Party approval.
The Xinhua News Agency is the state press agency of the People’s Republic of China.
Xinhua is a ministry-level department subordinate to the State Council and reports to the Communist Party of China’s Publicity and Public Information Departments.
And the People’s Daily?
The People’s Daily is a daily newspaper in the People’s Republic of China. The paper is an organ of the Central Committee of the Communist Party of China (CPC).
Also run by the Chinese government. So uh, guess who’s in charge of investigating whether or not Nu Skin are a pyramid scheme?
Yeah, one and the same.
That said, if it was in any other country I’d suggest, given the government news reports, that the results of a subsequent government investigation were a foregone conclusion.
In China though? MLM regulation is a bit of a mystery there.
From my vague understanding of Chinese MLM regulation, companies approach the government to market MLM there. Money changes hands, something something something, wheels get greased, something something something, bingbaddaboom you get handed an MLM license.
Then, provided of course you keep those wheels greased, you’re pretty much free to do whatever you want.
There’s a strong possibility that, as opposed to actually giving a damn whether or not Nu Skin are operating as a pyramid scheme there (does anyone really think Nu Skin has over 2 million retail customers over there?), it’s going to come down to whether or not the money received from MLM license fees is worth the trouble.
MLM could completely be banned once again in China (which would be disastrous for Nu Skin, as approximately 30% of their revenue is generated in China (Citron)), or the government could just as easily pick out some local Nu Skin affiliates as scapegoats, issue some fines, raise MLM licence fees and then go back to turning a blind eye.
Well, at least until the MLM environment there blows up again.
Given what we know it’s certainly a difficult call to make. I have no idea what MLM companies pay the Chinese government to operate there but I imagine we’re not talking chump-change.
I guess we’ll just have to see how the powers that be in China play this one out. What I personally find interesting is the greater impact this might have on the industry as a whole.
If Xinhua are to believed clearly Nu Skin are pulling fast ones in China, but they aren’t the only MLM company heavily invested there. Herbalife, Usana, Amway… these are all MLM “big hitters” who have pretty much pegged their businesses growth based on continued affiliate expansion in China.
Knock China out of the equation and all of sudden there’s a sizeable vacuum in these companies’ sales revenue projections and potentially their long-term viability.
I suppose at the very least they might then be forced to return to focusing on their non-Chinese markets, which I guess will likely be a good thing for the industry. It’s certainly felt like the models of MLM companies that operate in China has been all about maximizing affiliate recruitment there for some years now.
Certainly a lot to think about if things were to go sour.