[Q&A] Are KOL-generated Sales on Social Media Considered Advertising?
2023. 12. 8
[Q&A] Are KOL-generated Sales on Social Media Considered Advertising?
As a corporate law firm, we are used to answering many questions from our clients about their business in China. In this series of Q&A articles, we will discuss some of the topics that our clients have shown interest in.
Question: With the rise of various internet platforms, sales channels for products have gradually shifted to apps and live streaming. It is now common for well-known individuals or KOLs to post articles and reviews on community platforms like Xiaohongshu, WeChat Moments and Weibo. How can we determine if what is called 种草 (‘zhong cao’) in China falls under internet advertising or not?
Answer: According to Article 2, paragraph 1 of the Advertising Law of the People's Republic of China, commercial advertising activities refer to introducing products or services for sale by product operators or service providers through certain media and formats, directly or indirectly.
According to Article 2 of the Administrative Measures for Internet Advertising, internet advertising refers to commercial advertising activities that use internet media such as websites, web pages, internet applications, to sell products or services directly or indirectly through text, images, audio, video, or other forms.
Therefore, the typical constituting elements of advertising are considered to include the following four points:
①the subject being a product operator or service provider,
②the intention to introduce and sell products or services,
③using certain media or formats,
④performing acts that directly or indirectly promote the sale of products or services.
The content posted by KOLs with significant social influence on platforms like Xiaohongshu or WeChat Moments often has a certain incentive for consumers. Although ads published on the platforms possess the characteristics of 'non-profit' or 'hidden,' they also possess 'persuasiveness' from the consumer's perspective and can achieve the goal of product popularity and marketing.
However, whether the ‘zhong cao’ behavior constitutes internet advertising or not depends on determining whether it fulfills the constituting elements of advertising. It satisfies the formal requirements of advertising (using specific media or formats), and entails the act requirement (indirectly introducing or promoting products). Therefore, to determine whether it constitutes advertising, it is necessary to assess whether the subjective and objective requirements are met.
1. If KOLs post content on behalf of product operators or service providers, introduce or sell products or services based on demand, and the related companies pay promotional expenses or compensation for marketing, then the behavior may fulfill the subjective and objective requirements and potentially constitute internet advertising.
2. If KOLs voluntarily share and introduce information on platforms like Xiaohongshu, WeChat Moments, without establishing a cooperative relationship with product operators or service providers regarding the content, then the behavior may not fall under internet advertising.
