AmCham Shanghai recently published an article I wrote on China’s new E-Commerce Law, titled, Implications of China’s E-Commerce Law, and I urge you to read it. I was asked to write this article to explain the implications (hence the title) and the practicalities of China’s new e-commerce law. Actually, my law firm was asked to write this article, but I then was tasked with this because I have been working on a steady stream of China E-commerce matters since the new law came out. The below borrows liberally from my article but summarizes it.
The article itself starts by defining the various terms relevant to China’s new E-Commerce Law: “electronic commerce,” “platform operators,” “operators on e-commerce platforms” and “e-commerce operators.”
The E-Commerce Law defines “electronic commerce” as business activities related to selling goods and services via information networks such as the Internet. It expressly does not include services that provide news, audio and video programs, as well as publications, cultural products and other content services provided via information networks, and financial products or financial services.
This post will focus mostly on e-commerce operators and the rules regarding e-commerce platform operators most relevant to foreign companies seeking to sell online in China. E-commerce operators are defined to include the entities that sell goods or services through self-established websites or other network services (e.g. social media sites). This definition is broad enough to cover most online sellers and selling activities.
The Law requires nearly all e-commerce operators to register as market entities. The Law further requires all e-commerce operators report and pay taxes according to applicable laws and regulations and do the following:
- Display their business license and any administrative permits, or provide a statement making clear that they are not required to register. If an e-commerce operator voluntarily discontinues its e-commerce business, it must notify the public by continuously displaying at least 30 days in advance of the date on which it will cease conducting its e-commerce business;
- Disclose information regarding its goods or services in a comprehensive, authentic, accurate and timely manner so as to protect the consumer’s right to know and right to choose;
- Provide non-targeted options if it provides targeted search results based on the consumer’s interests, habits or other personal traits;
- Not use any tie-in sale as a default option;
- Clearly set forth its procedure for refunding any deposits collected. This procedure cannot set unreasonable refund requirements.
E-commerce platform operators are essentially the Alibabas, Taobaos, and JD.coms of the world. E-commerce platform operators must build comprehensive systems for product and service evaluation, keep records of goods and services published and transacted on their platform, and establish fair and transparent rules for their platform services and transactions. They also must verify the identity, business registration, tax registration and any other required permit or licenses of any on-platform operator.
E-commerce platform operators can be held liable for goods and services sold on their platforms that do not comply with China’s personal safety or property security requirements if the platform operator knew or should have known about the failure to comply. E-commerce platform operators may also be liable for harm caused by one of its “consumer health” vendors if it failed to verify those vendors’ qualifications.
E-commerce platform operators also must establish and enforce intellectual property rules and delete, block or disconnect links and terminate transactions or services that infringe on an IP holder’s rights. In practice, many of the e-commerce platforms have already established rules for IP protection. For example, if you find a supplier on Alibaba using your trademark or a copyrighted photo without your authorization, you can report the infringement to Alibaba (along with proof of your IP rights) and request Alibaba take down the infringing product page or photo and it usually will. Because China’s e-commerce platforms operate mainly within China, proof of IP rights in Chinese or certificates issued by Chinese authorities will usually lead to faster platform operator action. See Getting Counterfeits off Alibaba: Anger is NOT a Strategy.
Why is any of the above relevant to foreign companies that “merely” sell on a China e-commerce platform? Because if you do not meet the requirements necessary to get on such a platform you almost certainly will not get on. Or if you do get on such platform and then start creating liability risks for your platform operator, you can expect to get booted off relatively quickly. These are serious legal requirements with serious enforcement mechanisms and companies like JD.com and Alibaba take these requirements extremely seriously.
Additional Impacts on foreign businesses.
Certain other provisions in the E-Commerce Law will directly impact cross-border e-commerce activities. For example, article 26 of the E-Commerce Law requires e-commerce operators that engage in cross-border e-commerce to comply with China’s import and export laws and regulations. Chapter 5 of the E-Commerce Law, Promotion of E-Commerce, provides that China shall promote cross-border e-commerce development, establish and improve the management systems of customs, taxation, entry-exit inspection, payments and other systems relating to cross-border e-commerce, and support cross-border e-commerce platforms in warehousing, logistics, customs declaration and inspection services.
Six China government agencies have issued a notice regulating cross-border e-commerce retail imports. This Notice defines “cross-border e-commerce company” as a company formed outside China that sells to consumers in China from overseas. According to this definition, all foreign businesses that sell goods to Chinese consumers at a retail level can be considered cross-border e-commerce companies. This Notice requires cross-border e-commerce companies register with China customs through a company registered in China and report real-time transaction data of retail imports. Theoretically, all cross-border e-commerce companies must register with Chinese customs and comply with all applicable requirements and China customs will block entry of any goods that violate these requirements. It will though be difficult for foreign companies, especially smaller businesses, to comply with these requirements. China customs will likely enforce these requirements by blocking non-compliant goods from entering the country or by shutting down the websites of foreign sellers that do not comply. Already, some foreign department stores that previously shipped directly to China for their online sales have switched to opening shops on large Chinese e-commerce platforms (such as Tmall) through a Chinese distributor or subsidiary. Others have pulled out of the Chinese market entirely.
We will continue to keep you updated as China’s enforcement policies regarding its new e-commerce law becomes clearer.