China's new e-commerce: Are they ponzi schemes?

A new form of e-commerce sites are getting attention from the likes of Tencent, Hillhouse and Shunwei, but investors beware as some business models have pyramid-scheme qualities.

China's e-commerce business remains a gold mine in the eyes of many investors despite its massive growth in recent years. But as new and innovative business models continue to emerge, investors may find themselves stepping onto land mines if they do not examine their investments carefully.

One example is Tencent's recent decision to quit the fundraising round of e-commerce site Beidian. The young Chinese startup has a unique business model which appears to have some characters that make it looks like a pyramid scheme.

Social e-commerce sites like Beidian ask every customer to pay a membership fee and promise a commission for every new member they recruit....

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