China New e-Commerce Law: More compliance and stronger protection of consumers

As from 1 January 2019, China will implement a new e-commerce law. This new law will provide for a better protection for consumers and owners of brands. That way China will further increase the fight against the country’s reputation as a source of fake goods.

Over the past years we have witnessed a staggering growth of e-commerce sales in China. In 2017 almost a quarter of all retail sales in China was done using the digital highway. The estimate for 2019 is that this will reach a third.

The Chinese Government realised the importance of these trends and it is not surprising that the Standing Committee of the National People’s Congress (NPC) passed a new law on 31 August 2018. In this article I will summarize the main changes introduced in this new law.

Who will fall under the new law?

The new e-commerce law is applicable to the following three types of E-commerce Operators:

  • “Platform Operators”: Any legal persons or unincorporated organizations that provide for a site for online business operation, transaction matching, information release, and other services to facilitate parties in an e-commerce transaction. The Platform Operators include not only operators who provide for platforms exclusively for vendors, such as Taobao.com’s operator Alibaba, but also those who also do self-operated business on their own platforms, such as JD and Holland at Home.
  • “Operators on Platform”: The parties, merchants, who sell their goods or provide for services on e-commerce platforms which are operated by the relevant Platform Operators. E.g. a vendor that operates an online store on Taobao.com.
  • “Self-support Online Sellers”: Other parties who do business online on websites established by themselves or using other online channels, such as social media applications like Wechat.

Figure 1. Parties that fall under the new law

 

It is a significant change that many new shopping channels, such as Wechat and Douyin, fall within the scope of the law. However, necessary since in recent years the number of small businesses set up in these channels has increased enormously. These stores typically have no business license or credit guarantee and hardly any customer service. Although most of them are legitimate, some of them simply changed their account and disappeared. Leaving behind “disappointed” customers.

Enhanced protection of consumer rights

  • Against profiling

The new law also covers the frequent use of data profiling on consumers, meaning the provision of goods or services to a consumer based on his/her interests, hobbies or habits. In that case, the E-commerce Operator has to provide alternative options without these personal characteristics being taken into account.

  • Against product tying

Online merchants shall explicitly inform consumers of product or service tying. A consent of purchasing such products or services is not allowed to be set as default.

  • Against fake reviews

The law also aims to protect consumers against fake reviews. Fake reviews, meaning positive ones in particular written by hired agents or customers in exchange for monetary rewards, are banned.

Enhanced protection of IP rights

Any IP right holder can notify the relevant Platform Operators of an infringement and request them to take necessary steps in a timely manner, such as to delete or block information about the alleged infringement, disconnect the relevant webpages, or terminate the relevant transactions and services. If the Platform Operator fails to do so, it will be jointly liable with the Operator on the Platform. The same applies if the Platform Operator knows or should have known the infringement but fails to take measures. Those who fail to do so can also face penalties of up to RMB 500,000.

Every online retailer needs to register with the State Administration for Industry and Commerce to obtain a business license. This aims to make it more difficult for those who infringe IP to avoid punishment.

Regulating unfair competition

Article 22 of the new legislation introduces fair competition obligations for all e-commerce operators. Especially the dominant players in the market are prohibited from abusing their position to exclude or restrict competition. All Operators are prohibited from imposing unreasonable restrictions, conditions, or fees on merchants.

This new law comes at the right time. E-commerce is rapidly growing but so far there has been hardly any oversight. The new law will enhance the protection of consumers and brand owners (or IP right holders), who increasingly rely on the online market. It will also help China to get rid of the reputation of a source of fake goods. For platform owners the new law means they have to do a better due diligence on the products they offer.

For more information please contact Joost Vrancken Peeters at jvp@kneppelhout.nl or +31620210657 or Victor Zheng at vz@kneppelhout.nl or +31640760288.