30 November 2018
The whole world has seen China growing into one of the largest consumer markets, as particularly boosted by its fast emerging e-commerce sector which is already now a pivotal part of the country’s economy. Besides many well-known online marketplaces like Alibaba, JD and the newest force Pinduoduo, quite a lot of other players operate under different business models including the very popular shopping from offshore model (“Haitao/海淘” in Chinese) where many foreign brands and players also have a stake. Since long ago, there have been constant issues and problems associated with the rapid growth of the e-commerce business which triggered a lot of concerns from various angles.
Governmental agencies have been taking various measures and actions to regulate these issues and problems, which gradually turned into a formalistic approach resulting in now the final enactment of the new PRC E-commerce Law on August 31, 2018 (“E-commerce Law”). The legislative process of this law has been quite spotlighted for a while. Its unprecedented four rounds of review by the congress attracted heated debate among experts and industrial stake holders in many fields. This law will take effect as of January 1, 2019. Below we would like to share with you some key highlights under the E-commerce Law which we deem are more relevant to international operations.
Coverage of the E-commerce Law is very broad. According to its Article 2, e-commerce shall refer to the operational activities to sell goods or provide services via information networks like the internet. Its Article 9 further defines e-commerce operators to be individuals, legal persons (companies) and non-legal person organizations who carry out e-commerce as aforesaid defined, including e-commerce platform operators, merchants operating on the e-commerce platform and others selling goods or providing services via self-constructed websites or other “network services”. Such definition could mean to cover all online associated sales activities, be it sales of goods or services, by an individual or a company, via a traditional webpage, social media services or any other internet tool.
In this context, many trick questions could arise. E.g. will the popular overseas buy-on-others’-behalf (Dai Gou代购 in Chinese), Wechat Moment marketing, SMS promotion fall within the scope of this law? The answer will be yes since they are obviously online based or closely connected with online tools or use of social media. The same conclusion will also apply to the cross-border delivery model which has been adopted by some foreign brands targeting Chinese consumers while keeping their operation abroad to avoid onshore exposure. Although Article 2 of the law states that it applies to e-commerce activities within the territory of the PRC, the various connection factors (e.g. promotion and performance within China, ICP filing requirement) will pull a cross - border delivery model closer to the reach of the Chinese authorities. Hint in this regard may also be found under Article 26 of the law which was newly added in the published final draft and explicitly stresses that those conducting cross - border e-commerce operation shall abide by the laws and rules on import and export supervision. Considering tendency of the Chinese government to quite often launch enforcement campaign when a new law becomes effective, many existing business models will need to be legally revisited and adjusted where necessary so as to better accommodate the increased legal exposure brought by the new E-commerce Law.
One important aspect of the E-commerce Law is obviously to better regulate the market and protect consumers. To this effect, many new obligations were brought in. Below are some examples:
Still until now, China does not have a systematic legal framework to regulate privacy and personal data protection issues. Even though now there is the new Cyber Security Law effective as of June 1, 2017 incorporating a special chapter addressing personal data protection, privacy and personal data protection regime still remains as patchwork of fragmented rules which you may also find under various other laws, measures and sector-specific regulations. The E-commerce Law continues on this path regarding this topic.
Article 18 of the law now addresses consumer profiling issue. When offering goods or services including search results according to consumption preference and habits profiling, an e-commerce operator shall also offer options independent from the concerned consumer’s personal profiling so as to respect and treat consumers equally. This clause could hit the very controversial “smart marketing activities” where some players intentionally abuse their data rich position, which results in discriminatory treatment to different consumers. To avoid circumvention, Article 19 further stipulates that for any tied-up sales or services (e.g. profiling based recommendation), a remarkable reminder shall be placed while default opt-in is not allowed. Any violation in this regard will face legal punishment including a fine up to RMB 500,000.
It may be a quite unique thing to see a specific law being enacted to regulate e-commerce activities, since the topics of concern under this E-commerce Law seemingly could have been regulated by other specific laws regarding e.g. consumer protection, competition, contract conclusion, data protection. Again China takes a very pragmatic approach to roof all these topics under the E-commerce Law, which however could trigger quite some practical implications which international operation shall pay special attention to. E.g. the very broad definition of e-commerce activities/operators and the explicit reference to cross-border operation could likely grant the administrative authorities more legal bases to examine and challenge some easy-to-start but risky business models like cross - border delivery from offshore. The statement under Article 4 of the law that the government shall treat both online and offline commercial activities equally sounds quite reasonable. However, considering the fact that there were fewer rules regulating online commercial activities, such a statement generally seems to indicate heavier regulatory burden of e-commerce operators in future (as we have outlined in above sections).
The focus of better protecting Chinese consumers as contemplated under this law including the introduction of the various punishment measures targeting violation may also signal an invitation to use China’s product quality and consumer protection claims, which may not necessarily be good news for all players in this fast growing market. As always, enforcement is the key in China and how the regime will develop remains to be closely watched upon. Our e-commerce experts are constantly monitoring this.