Tea Leaf Nation

Fool’s Gold

Fool’s Gold

On Jan. 17, hundreds of young men and women partied in the ballroom of a five-star hotel in Wenzhou, a large city in eastern China. The women were fully decked out in colorful evening gowns, the men in tuxedos. Some sported expensive purses, ornate Venetian-style masquerade masks, or ribbons with the English words "Team Elite." One took to Sina Weibo, a social media platform, to urge her followers to join her: "if you are also a little bit vain, if you feel like you should be the star in your own life." For those ambitious enough, she continued, "next year’s spotlight could be on you."

These young Chinese are self-styled Nu Stars, a moniker for salespeople for Nu Skin, a Utah-based health product maker that reportedly made more than 31 percent of its total revenue of $2.16 billion in China, all just in the first nine months of 2013 (fourth-quarter data is forthcoming). The company acknowledged Jan. 16 that it is now under investigation for marketing practices that, according to Chinese state-owned media, involve brainwashing and defrauding these fervent young members of China’s wannabe glamour set.

Like Amway and Mary Kay, Nu Skin relies on salespeople peddling products directly to family and friends, while developing new recruits to do the same. This technique has a checkered history in many parts of the world including the United States, but it is particularly fraught in China. In 1998, the Chinese government banned all enterprises employing the practice after a flood of pyramid schemes claimed thousands of victims, but eased the restrictions somewhat in 2005 to allow "direct selling," whereby salespeople earn a commission based on the quantity of products sold, rather than the number of "downlines," an industry term for new enlists. 

U.S. companies with well-developed direct selling cultures, like Amway, Herbalife, and Mary Kay, still boast a significant collective presence in China, albeit with somewhat modified business models that involve opening brick-and-mortar stores and registering salespeople as distributors. But Nu Skin was reportedly more aggressive in its practices, employing salespeople directly and compensating them for downlines. This deviated dangerously from a relatively well-tested gray area, and toward a clear violation of Chinese regulations. On Jan. 21, Nu Skin announced that it would halt recruitment of new distributors in China.  

Rules aimed at direct selling in China are not simply intended to protect consumers from falling prey to pyramid schemes. The ruling Communist Party has historically been extra-vigilant about direct selling because it often involves some forms of mass gathering and indoctrination, which the Party deems to be key factors in developing dissent. Chinese authorities reportedly busted more than 7,600 pyramid schemes involving more than 60,000 people over a three-month period in 2013 in a campaign against direct selling. The hold of these rings on their adherents can be so strong that government interference sometimes lead to unrest: In May 2013, hundreds of people involved in a direct-sales scam confronted police in the central city of Hefei, injuring 32 officers.

Those involved with Nu Skin, however, don’t seem interested in political organizing, just the mirage of success that lies in slickly-packaged beauty products with foreign names like "ageLOC"and "Scion." Over 10,000 user accounts on Sina Weibo have "Nu Skin," "Nu Star" or "ruxin," the Chinese name for Nu Skin, in their handles. The sample is certainly skewed because Weibo, with over 280 million total users, has a youthful demographic. Nonetheless, it is revealing that an overwhelming majority of the Nu Star-labeled accounts are young women in their twenties and thirties. A fair number proudly show off the label "post-90," a common way of referring to young people born after 1990. Many call Nu Skin a "platform for young entrepreneurs," where they can "work hard, play hard." 

Judging from their social media personalities, Nu Stars are a group of Chinese youth aching for recognition, glamour, and freedom — all in relatively short supply elsewhere in their lives. Even after winning a brutal competition for thankless, low-paying jobs, many young Chinese still struggle to pay rent, support their families, and find extra money to afford the luxury goods that their country’s middle class conspicuously consumes. An August 2013 article in Chinese state-owned media cited a police report that concluded that an increasing number of college graduates join pyramid schemes because "they have become frustrated by tough competition in the job market." 

Indeed, the self-motivational quotes about hard work and overcoming obstacles that interlard the large number of online posts from Nu Skin salespeople do not carry the faintest whiff of political dissent. Instead, these young people appear to be desperately searching for a way to climb a social ladder that has become increasingly slippery. The promise of a less-treacherous path to riches — even one that involves hard work, not just play — has drawn tens of thousands of Chinese youth looking for somewhere to channel their aspirations. 

Many young Chinese, overwhelmed by the seemingly unattainable material demands that beset their early adult lives, say they have given up trying to meet them. For a brief time, Nu Skin appeared to offer a different path for those determined to fight for what they perceived to be the good life. Self-declared Nu Stars partied, preened, and posed before Nu Skin-branded backdrops as if they were Hollywood royalty on the red carpet. Now it may be time for them to return to a harsher reality.