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China tech

China's social commerce star Yunji grows its fan base

Pyramid scheme controversy clouds Nasdaq company's future

The Yunji app has many fans in China, but some accuse it of being a pyramid scheme. (Photo by Shin Watanabe)

DALIAN, China -- Membership-based e-commerce platforms are enjoying rapid growth in China. But the prospects of leading upstart Yunji are in doubt as it continues to face suspicions of running a pyramid scheme.

"I like Yunji not just for shopping, but because it's also a quick way to make money," a 31-year-old owner of a Jiangsu Province clothing store raved about the service, which awards members a variety of perks.

Launched in 2015 by a predecessor group company, Yunji offers an array of products ranging from cosmetics to food. Members pay an initial enrollment fee of 398 yuan (roughly $57) and enjoy discounts of up to 30% on their purchases.

Members also get cash-back rewards of about a quarter of the enrollment fee for successfully referring new members. They earn a commission on sales of products they recommend as well.

These benefits are attracting new customers to Yunji, a lesser-known rising star in a country where giants like Alibaba Group Holding dominate e-retailing. Yunji's membership soared 46% to about 10 million in the first six months of 2019. Revenue jumped 18% on the year to 6.4 billion yuan for the first half. The company even joined Nasdaq in May, raising $121 million through its initial public offering.

Another popular social commerce platform, Beidian, employs a similar business model.

But this very model has caused Yunji's legal headaches. Chinese authorities fined the company roughly 9.6 million yuan in 2017 for violating pyramid scheme laws. The startup says it has since modified its membership structure to comply with regulations. But Yunji still falls into a gray area legally, and its business model violates the law, according to local media.

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