Rebate websites found running pyramid schemes
A growing number of rebate and coupon websites in China may face an industry reshuffle due to their involvement in pyramid schemes, analysts warned yesterday, as the government continued to close down problematic websites in the sector.
"These methods of marketing and investment fraud are harder to detect because of their integration in e-commerce," Chen Shousong senior e-commerce analyst with Internet market research firm Analysys International, told the Global Times. "But these practices will greatly harm the country's e-commerce sector and the private capital market."
Chen said there are two operating methods for rebate websites in China: To give buyers 2 to 30 percent rebates, or to offer people rewards for all the money they spend on a purchase following an initial payment.
"The latter is actually a pyramid scheme that rewards those netizens who introduce others to register on the website and join the scheme," Chen said. "Such a model can easily lead to a cash flow crisis and the eventual collapse of the business."
"Many websites have used pyramid schemes to generate huge profits, and a number of retailers on the websites have also published fake advertisements," Zou Lingbo, founder of China's Anti-Pyramid Selling Alliance, told the Global Times.
"The consumers should also be blamed," he said.
China has more than 1,000 rebate websites suspected of conducting pyramid schemes, according to the latest report released by fcx114.com, a website launched by the alliance.
Supported by the State Administration of Industry & Commerce and the Economic Crime Investigation Department under the Ministry of Public Security, the alliance found that many government officials have participated in setting up the pyramid schemes, with some reports of illegal money laundering deals.
Rebate website wjgw.com user Liu Jie, a middle school teacher in Shangrao in East China's Jiangxi Province said that the product prices on the website are some 20 percent higher than those on leading e-commerce sites
"I found the website offers really high rebates, but they are often delayed and 20 percent will be taken out as rewards for earlier investors," Liu told the Global Times.