China’s e-commerce shake-up: Effects of new e-commerce law on online businesses

On 31 August 2018, China’s top legislative body passed a new e-commerce law known as the Electronic Commerce Law of the People’s Republic of China (中华人民共和国电子商务法) imposing stricter regulations on e-commerce businesses operating within the territory of China. Citing the need to protect “rights and interests of parties to e-commerce” and “maintain market order”, the new law demonstrates China’s renewed efforts to crack down on the Wild West that is currently its online marketplace.

Who will it apply to?

The law applies to ‘e-commerce operators’ (Operators) – a term which is defined to mean individuals, companies or unincorporated organisations engaged in the business activities of selling goods or providing services via the Internet or other information networks within the territory of China. Specifically, the law clarifies that the following type of businesses will fall under its jurisdiction:

  • Platform operators: Individuals and entities who provide the digital space for vendors to conduct their businesses and facilitate e-commerce transactions between the vendors and buyers. One example of this is the popular Chinese shopping website Taobao which is owned by Alibaba;
  • Vendors on the platforms: Third parties who use e-commerce platforms to sell goods and services, such as merchants operating online stores on Taobao; and
  • Other online sellers: This includes individuals and entities conducting businesses through their own websites and non-traditional shopping channels such as social media.

This expansive application means that almost every e-commerce player operating in the Chinese online space, including Australian businesses and exporters, are subject to this law and must either comply or risk facing penalties of up to 500,000 Yuan (approximately $99,400 AUD).

Key obligations

Key obligations prescribed by the new e-commerce law include:

  • Registration requirement: Operators selling in China will need to register for an online selling certificate and publically display this in their online stores. All e-commerce operators are required to register, with the exception of certain operators including individuals selling home-made handicrafts and operators with small-scale trading activities;
  • Additional consumer protection measures: Online businesses will be prohibited from paying individuals to write comments and reviews to artificially boost the ratings of the business, products or services. Businesses attempting to tie in other goods and services into consumer transactions must draw the attention of consumers to this practice, and are prohibited from applying default consent to force such purchases. In addition, all online advertisements must comply with all relevant advertising laws in force in China;
  • Complaints and dispute mechanisms: Platform operators are required to bear greater liability in respect of their platforms, in the event of loss or damage suffered by consumers. All e-commerce operators will also be required to establish effective mechanisms for consumers to report and make their complaints which must then be publically disclosed. Operators are required to assist consumers in e-commerce disputes by providing them with their original contracts and transaction records;
  • Enhanced intellectual property protections: Platform operators must now take “necessary measures” to protect intellectual property on their platforms. An intellectual property owner may submit a notice of intellectual property infringement if there is “prima facie evidence of infringement”. The platform operator must transmit this notice to its vendors and may be required to undertake further action to remove the infringing content (eg taking down infringing listings and web pages). Conversely, vendors may rebut allegations of infringement by forwarding a declaration of non-infringement along with evidence to this effect through the platform operator to the rights owner. Platform operators may be held jointly and severally liable for damages along with the infringer if they “knew or should have known” about the infringement, but fail to take action; and
  • Enhanced privacy protections: Operators must also ensure the protection of consumers’ personal data and comply with the Cybersecurity Law of China and other relevant regulations, or face significant penalties in the event of a data leak or misuse.
Impact on cross border e-commerce

The broad application of the new e-commerce law means that businesses engaged in the online sale and importation of goods into Chinese territories will also be subject to the law’s obligations. This includes an additional obligation under Article 26 of the e-commerce law to comply with China’s import and export rules. These rules are prescribed in China’s cross border e-commerce (CBEC) policies.

China’s existing CBEC policies were first introduced in 2016 and were set to expire on 31 December 2018, a day before the new-ecommerce law was to take effect. It was initially feared that new CBEC policies would be introduced alongside the e-commerce law to tighten regulations for the import and export of goods into China.

However, on 28 November 2018, Chinese authorities announced that application of the current CBEC policies would be extended into 2019, and further improved to boost cross border e-commerce. Among these improvements are:

  • Expansion of CBEC retail imports list: 63 categories of goods in high demand are included in the list of products approved for importation into Chinese territory through CBEC platforms;
  • Relaxed regulations of goods: Requirements of licensing, registration or record filing for first time imports will not apply to goods imported through CBEC platforms. Instead, these goods will be treated as imports for personal use and be subject to relaxed regulations;
  • Increase of CBEC pilot zones: There will be more cities with CBEC pilot zones to receive imported goods, allowing for CBEC companies to enjoy a more convenient importation procedures; and
  • Higher tax-free transaction limits: CBEC goods will enjoy higher tax-free quotas on single transactions (raised from 2,000 Yuan to 5,000 Yuan per transaction, and 20,000 Yuan to 26,000 Yuan per head per annum). This benefits consumers in China looking to buy high-value CBEC goods.

Nevertheless, CBEC businesses should not mistake these improvements as deregulation of CBEC goods.

CBEC businesses must still comply with all obligations under the new e-commerce law, including the requirement to record and register their specific e-commerce platforms.

The CBEC policies also impose further obligations on CBEC businesses to ensure the safety and quality of goods. These include:

  • Local designation: CBEC businesses must designate a domestic company to be held directly accountable by Chinese authorities for product safety and quality;
  • Notification of potential risks: CBEC businesses must issue notifications on their e-commerce platforms regarding the difference of technical specifications met by CBEC goods in their country of origin as opposed to Chinese standards; and
  • Prohibition against redistribution of CBEC goods: Participants in all levels of a CBEC supply chain bear responsibilities to ensure goods are not redistributed. Foreign sellers and their designated domestic companies must post warnings on e-commerce platforms to highlight the prohibition to potential buyers. Platform operators must conduct due diligence to verify the identities of each individual buyer and impose systems to detect and deter dubious purchase activities (such as large volumes of purchases by a single buyer). This particular regulation is targeted at clamping down on ‘Daigou’ traders (individual shoppers who purchase goods to resell in China).
Implications

China’s new e-commerce laws and improved CBEC policies demonstrate its efforts to balance consumer protection and promote the development of cross border e-commerce. If successful, this will open up a bigger Chinese market for legitimate e-commerce players whilst simultaneously clamping down on illegitimate sellers.

Australian businesses in China’s e-commerce space should be prepared to ensure compliance to the best of their ability. This will require registration of online businesses with Chinese authorities and a re-assessment and potential updating of existing systems which deal with consumer complaints, intellectual property infringement and product safety and quality.

How can we assist?

If you interested to know more about how the new e-commerce law and CBEC policies may impact your business, or if you require compliance assistance, please feel free to contact a member of our IP, Technology & Media team.

This article was written by Luke Dale, Partner and Stephanie Leong, Law Graduate.

Luke Dale

P: +61 8 8205 0580

E: lcdale@hwle.com.au

Important Disclaimer: The material contained in this publication is of a general nature only and is based on the law as of the date of publication. It is not, nor is intended to be legal advice. If you wish to take any action based on the content of this publication we recommend that you seek professional advice.