China will implement a new e-commerce law from 1 January 2019 with the intent to further enhance legal protection for consumers and brands, especially in relation to curbing the counterfeit goods market, for which China has gained an unhealthy reputation.
E-commerce in China has grown to about 19% of the total USD 5.8 trillion retail sales. It is projected to grow at an average of about 20% each year (in rural areas such growth is averaging 39%), so the need for better regulation of the market is paramount.
The China National People’s Congress (NPC 中华人民共和国全国人民代表大会) has in the past few years really focussed on this issue and its Standing Committee has already reviewed and passed regulations related to e-commerce.
The growth of e-commerce in China has also seen the exponential rise, in the past decade, of major players like Taobao, TMall, Alibaba, Ju Mei, Jin Dong, Amazon and VIP Shop, who have all gained incredible attention and have grown so as now to be larger than the combined online business of counterparts in the U.S.A., the U.K., France, Germany and Japan.
In 2017 alone, China online business was over USD 900 billion, with the few key players accounting for about 75% of the whole pie.
A very long process
It took over five years of consultations with different involved parties (ministries, provincial-level administrations, educational bodies, industry experts, online merchants, major retail players, etc.) before a final version was passed to the Standing Committee of the NPC, indicating an extremely complicated process that took all precautions into consideration and also had to deal with strong lobbying from big national operators which have close relationships with local and central authorities.
Impact on a variety of operators and businesses
The new Law applies to both conventional e-commerce operators and to online service providers, such as travel agents, car-sharing and bike-sharing providers, online food ordering and delivery services, other online-to-offine service providers and social media applications which sell goods and/or services.
The new law defines the different types of businesses which fall under its jurisdiction and the related regulation; platform operators that provide digital business and release information as major market players do; third parties which sell goods or provide services on e-commerce sites; directly operated e-commerce business of different brands and merchants on their own websites or social media platforms – amongst whom is the extremely popular WeChat app.
Years ago, some of these operators were escaping many of the then existing rules and regulations – especially in terms of retail licences and consumer protection – just by changing account details or deleting contacts. One of the major aims of this new regulation is to avoid a party simply vanishing, hence avoiding any legal responsibility.
Intellectual property and competition
Another crucial issue with the new rule coming into force is the enhanced protection of Intellectual Property (IP) rights. In fact, now every operator will need to register with the State Administration for Industry and Commerce (SAIC 国家工商行政管理总局) and obtain a licence in order to operate their business. Penalties for the ones which fail to do so can translate into very heavy fines.
If up to now the burden was on the merchant to ensure that they did not unwittingly sell fake goods, then from next January e-commerce operators will also need to be responsible and take appropriate action against such situations, or else being liable to a fine that can reach USD 30 million. China is making a huge effort to clean up its reputation as the biggest counterfeit source within the global market.
Consumers will now be better protected not only concerning counterfeit goods, but also fake reviews – negative and positive, both of which have been quite widespread through hired agents or paid customers – which have often distorted the market and the prominence of certain operators and brands.
The new legislation also tackles the unfair competition issue, especially regarding the obligation of dominant market players – which already have a clear advantage in terms of numbers of users, technological advantages and established market presence – not to abuse their position and impose burdensome restrictions, unreasonable conditions or heavy fees to merchants in order to restrict competition and gain a further advantage in the marketplace.
Data protection and compliance
Another aspect covered by the new regulation relates to cybersecurity and data protection. Indeed e-commerce platforms are required to enable users to check, rectify or delete information or to delete their accounts. They must also register and store information on goods, services and transactions in a complete, confidential and readily available manner for at least three years from the time transactions are completed, which is in line with the retention periods in the civil statute of limitation. E-commerce platforms are even requested to provide specific data to the authorities upon request, which may include personal information and trade secrets, yet it is not yet clear if such disclosures from operators to the authorities will require users consent.
While the Central Authorities encourage cross-border e-commerce, they stress the importance of compliance with rules and regulations regarding import and export, custom duties, tax, quarantine, payment systems and other aspects of international commercial activities.
This is certainly a necessary and overdue step to regulate and protect the online sales in the second biggest economy in the world, having given time through the consultation phase and this new regulation for operators, brands and consumers to familiarize with its content as well as giving Central Authorities the chance to clarify eventual doubts and avoid abuse or misinterpretations. In fact, it is mandatory to enable all parties involved in this type of business to update themselves with the updated legal norms and prepare for compliance in order to ensure consumer and brand protection.
Our team at Hugill & Ip has extensive experience in dealing with commercial issues – so if you need further advice on these subject and other topics discussed, get in touch with us to find out how we can help.
This article is for information purposes only. Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual instances.