1 January 2019: new Chinese E-Commerce Law effective

Date: Wednesday, January 9th, 2019 by Michaela Hickson.

Introduction

The vigorous development of e-commerce in China in the past 15 years has made the sector hugely successful, but also slightly chaotic. Therefore, China will implement its first ever comprehensive E-Commerce Law (the “ECL”) as of 1 January 2019. The ECL will undoubtedly become the main legislation regulating e-commerce in China, and it will be crucial for all companies active in this sector to be compliant to this law.

The most striking feature of the ECL is its broad scope since the law is applicable to all e-commerce activities taking place in China. E-commerce is defined here as “business activities of sales of goods or provision of services through the internet and other information networks”. However, financial products and services, as well as services that provide news information, audio and visual programs, publishing and cultural products, etc. distributed through information networks are excluded from the scope of the ECL. Note that these excluded categories are usually submitted to restriction or prohibition when it comes to foreign investment.

This article will elaborate on the expected key compliance issues relevant for foreign companies operating in the e-commerce sector of China.

Local entity in China

According to Article 10 of the ECL, in principle all e-commerce business operators shall complete market entity registration formalities pursuant to the law. This means the possession of a Chinese business license is required to qualify as an e-commerce business operator. The exceptions provided by the ECL only include individual’s small transactions of self- produced agricultural products and home-made handicraft products, low-value intermittent transactions, or where the registration is required pursuant to the laws and administrative regulations. E-commerce business operators covered by the ECL include the following:

•    E-commerce platform operators (such as Alibaba and JD.COM);
•    E-commerce platform users, such as sellers with Tmall shops); and
•    Other e-commerce operators who conduct their business through their self-built websites or other network services (such web shops or WeChat shops).

The ECL also applies to cross-border e-commerce. Although the ECL does not further stipulate the definition and scope of “cross-border e-commerce”, an article published on the official website of the Chinese top legislator, the National People’s Congress of the PRC, has clarified that regarding the applicability of the ECL to cross-border e-commerce,  the ECL should apply to overseas purchasing by e-commerce operators within China for domestic consumers, and for overseas purchasing by Chinese domestic consumers (which means the online seller is located outside China). The provisions of the ECL regarding consumer protection may be applied according to the Chinese rules on choice of law. In light of the forgoing, the online business selling of goods or provision of services to Chinese consumers from abroad does not need to do the required business registration set out in the ECL.

Issue tax invoices (“fapiao”)

Pursuant to Article 14 of the ECL, e-commerce operators shall issue proof of purchase of goods or services such as hard copy fapiao or electronic fapiao  (“fapiao”is the Chinese official tax invoice which is an important means for tax authorities to manage and supervise taxation) and file tax returns.

Review of promotion tools  

Based on Article 17 of the ECL, e-commerce operators shall disclose information about goods or services fully, truthfully, accurately and promptly, and protect the consumers’ right to know and their right to choose.  Any false or misleading business promotion (using  false transactions, fabricating user reviews etc.) is forbidden by law. Moreover, it is required by law that in addition to the provision of search results for goods or services based on consumers’ preference or consumption habit, the e-commerce business operators should also provide consumers with options that are not targeted at their personal characteristics.

Besides, the bundling of goods or services is restricted by the ECL: such bundling shall be highlighted prominently to consumers’ attention, and not be put as default option.

Properly handle Intellectual property claims 

Although the ECL is the first comprehensive law dealing with the major legal aspects of e-commerce in China, it is actually a reflection of existing practice to a great extent. A typical example is the notice-and-take-down procedures that already exist in some form under the Tortious Liability Law and have been implemented by most of the major e-commerce platforms in China. Pursuant to Article 42 of the ECL, an IP right holder shall have the right to request the e-commerce platform operator to adopt measures such as deleting, shielding or removing hyperlinks, terminating transactions and services etc. Such a notice shall include the preliminary evidence for the infringement. As required by law, the platform operators, upon receiving the aforesaid notice form the IP right holder should take “necessary measures” and forward the notice to the in-platform operators.

Upon receipt of the forwarded notification, the in-platform operators may submit a statement of non-infringement to the e-commerce platform operators. The statement shall include the preliminary evidence of non-infringement. After this the platform operators should forward the aforesaid statement to the relevant IP right holder and inform the said right holder that it may lodge a com-plaint with the relevant competent authorities or file a lawsuit to the competent court.  If the rele-vant IP right holder does no take any of the aforesaid actions and does not notify the platform operator within 15 days upon receipt of the statement of non-infringement, the platform operator should lift any measures taken against the in-platform operators.

Clarify the risk and liability for deliveries  

According to Article 20 of the ECL, e-commerce business operators shall deliver goods or services to the consumers in a manner and within the deadline as committed to the consumers or agreed with the consumers. The risks and liability for transportation of goods shall be borne by the e-commerce business operators unless a consumer selects another logistics service provider.

Compliance with the data protection rules 

The ECL emphasizes the need for personal information protection. Article 24 of the ECL stipulates that e-commerce business operators shall state clearly the method and procedures for inquiry, correction and deletion of user information as well as for the de-registration of user accounts to which no unreasonable conditions should be imposed.

Upon the request of the relevant competent authorities based on the laws or administrative regulations, the e-commerce business operators should provide the relevant e-commerce data information.

Jan Holthuis, [email protected], +86 21 61730388

Li Jiao, [email protected], +86 21 60836813