On August 31 2018, the National People’s Congress passed the highly anticipated new China eCommerce Law. This new eCommerce law reviews penalties for China’s dynamic eCommerce market, regulates operators in key aspects and puts emphasis on consumer protection.
Currently, the original text of the new eCommerce law is only available in Chinese. In this piece, we highlight the most important rules and regulations for the eCommerce industry. We will provide our analysis of the law’s key clauses and how implementation will affect consumers, companies, eCommerce brand websites or operators and regulations.
User Privacy and Information Security Come First
The new law obliges companies to guarantee user data security. Violation of this rule will result in confiscation of any illegally obtained gains. Furthermore, authorities may impose a fine between 2 to 10 times as much the amount of the illegal gains. Should there be no illegal gains, the highest fine could be 1 million RMB. If authorities find the circumstances serious enough, they can revoke the business license.
Regarding user data security, the new China eCommerce law bases itself on the China Cybersecurity Law (clauses 41, 42, 43, 64) and takes into account the European Union’s General Data Protection Regulation (GDPR). This means that whenever a company collects data and uses this information, it should clearly state its purpose, method and scope. Additionally, it must obtain consent of the user. Other website policies such as cookies and privacy require the same.
Of course, companies are not allowed to disclose, falsify or damage any of the personal data they collect. Furthermore, the law obliges them to handle the data confidentially and protect it accordingly. Individuals also have the right to request changes or deletion of their data.
*Relevant clauses (in Chinese): 23, 24, 64, 79
Personalised Promotions are Legal, But be Aware of the Law
It is still encouraged to send personalised promotions based on consumer’s interests and hobbies. However, using big data to get your relatives or friends to purchase, crosses into grey territory, bordering illegality. At the same time, consumers might get the right to not accept these personalised promotions. The results for anyone infringing the law will be confiscation of illegal gains and a maximum fine of 500.000 RMB.
*Relevant clauses: 18, 77
Banning Combined Sales Traps
Automatically ticked boxes for combined products are not allowed anymore. When making a purchase, customers needs to make this choice themselves. Any law infringement will result in confiscation of illegal gains and a maximum fine of 500.000 RMB.
*Relevant clauses: 19, 77
Marking Paid Ranking as Advertising
eCommerce operators often bid for top product search result spots. According to the new eCommerce law, such search results need to be clearly marked as advertising. This will probably create obstacles for Tmall’s PPC advertising conversion rates, for example.
*Relevant clause: 40
Issuing Invoices Legally Required
The new China eCommerce law stipulates that eCommerce companies need to issue invoices to consumers. Electronic invoices are also legally binding and valid. This new requirement generates additional costs for small and medium enterprises (such as a 17% tax increase). However, the law does not clearly state whether an invoice needs to be automatically generated during the payment process, or only at consumers’ request. Naturally, issuing invoices is a legal act that one needs to carry out according to the Chinese taxation system and laws.
*Relevant clause: 14
Linking ‘Brushing’ to Illegal Behavior
Of course it is necessary to provide consumers with complete, accurate and truthful product information. At the same time, companies cannot delete consumers’ product reviews as they wish, especially negative reviews.
Furthermore, any ‘brushing’ will become suspected of illegal behavior. ‘Brushing’ is a scamming technique that aims to boost a merchant’s image by creating fake orders. For example, a merchant pays a ‘brusher’ the cost of certain products they order plus an extra fee. The brusher makes the purchase and to complete the shipping process, the merchant delivers empty boxes or worthless items to a random address. The brusher will leave a very positive review on the merchant’s website to boost their rating, viewing, likes, ranking or any other KPI-related indicators. Large platforms such as Tmall, Taobao and Alibaba all encountered problems with these brushing scams.
Authorities can fine serious violators up to 500.000 RMB. Additionally, the law formulates that companies should track how consumers do the reviews for products on their platform. It does not clearly state whether this refers to an online commentary area or any other way. However, any actions deemed illegal will be penalised.
*Relevant clauses: 17, 39, 81
3-year Transaction Data Storage
With all the transactions happening in Chinese eCommerce, the new China eCommerce law now requires that transaction data is traceable for at least 3 years. Under serious circumstances, authorities may impose a fine of 500.000 RMB.
This of course increases the burden on enterprises’ IT technology and data storage. So companies might have to improve key aspects such as server deployment, software security and IT manpower. Additionally, in recent years companies are increasingly using the cloud to host and store data. Outsourcing data storage to third parties can lower the burden on one’s own operations. Furthermore, companies can easier comply with the law and avoid legal risks through these professional data security and cloud hosting services .
*Relevant clauses: 31, 80
Certification and Terms on the Homepage
For an eCommerce platform website, besides the above requirements it also needs to be clear whether their products are from self-operated merchants or operated by others. Finally, if you decide to close your eCommerce business, you need to show a notice on your website from 30 days in advance. For any violations, the highest penalty is 500.000 RMB.
*Relevant clauses: 15, 16, 33, 81
In recent years, quite some consumer casualties happened due to products bought online. Therefore, according to the new law, eCommerce platforms need to be stricter with product safety issues, especially online brand marketplaces, to protect consumers’ rights and property safety. Otherwise the platform will bear joint liability in addition to the merchant. Under serious circumstances the business will be closed down and a fine of up to 2 million yuan imposed.
*Relevant clauses: 38, 83
Intellectual Property Protection
There is stronger IP protection in eCommerce now. This also brings new challenges for platform management, especially branded platforms. The new eCommerce law stipulates that platform operators must take appropriate measures when they know or should know that their merchant infringes on IPR. This means for example removing, blocking, disconnecting or terminating the merchant’s transactions and services. If this does not happen, the infringer and platform shall bear joint liability and could fined a maximum of 2 million RMB.
*Relevant clauses: 42, 45, 84