2018 will be the year in which China becomes the world’s largest e-commerce market, with a combined market revenue of an estimated 765 billion US$. As this important sector has been growing in recent years, the Chinese government enacted a new e-commerce law which will take effect on January 1, 2019. It covers all major aspects of e-commerce, including delivery and payment methods. The law also intends to strengthen IP rights and to more effectively punish infringements and retailers of fake products.
ECOVIS Beijing has summarized the key points of the new e-commerce law:
One major aspect of the new e-commerce law will be the clarification of the business types that will fall under its jurisdiction. There will be three types of “E-commerce Operators”.
Business registration for e-commerce businesses
According to Art. 12 of the law, all businesses engaging in e-commerce in China, be it in form of a 3rd party platform or individually via their own website, have to obtain a permit prior to selling their goods or services.
Exceptions are service providers, offering their own individual technical skills and other small handcrafted products.
The new law also emphasizes the responsibility of 3rd party platform providers for IP violations by a business operator on their platform. As Art. 53 stipulates:
“If the e-commerce operator infringes upon the intellectual property rights within the platform, it shall take the necessary measures such as deleting, shielding, breaking the link, terminating the transaction and service according to law.”
Moreover, Art. 54 states that if an e-commerce platform receives a notice about an IP violation, “it shall promptly transmit the notice to the operators within the platform and take the necessary measures according to law”.
Art. 88 then declares that, if the violation is to be “serious”, the ICP license shall be revoked and a fine of at least 100,000 RMB but not more than 500,000 RMB shall be imposed.
Although this seems to put the responsibility clearly with the platform operator, there are justified doubts with regard to the execution of the law. First, it leaves a lot of room for interpretation about what constitutes a “serious” violation, and, second, the law does not clearly specify which administrative level will be in charge. In the past, local governments have often been reluctant to punish counterfeit producers, thus casting doubt on the effectiveness of these rules as formulated in the current law.
The law might also mean that foreign businesses have to be even more aware of their own brand’s trademark and IP protection in China. According to Art. 53, the claimant should make sure that the trademark is really protected in China (see our article on trademark protection in China ), because the law also states that, if the claim is not warranted according to Chinese law (!), the claimant will be liable for all damages incurred to the accused business. Therefore, foreign companies, which spot copied versions of their own products should make sure that they have registered their patents and trademark in China. Otherwise, their claim will be rejected and they might even have to recompense the Chinese company for their losses.
The law also clarifies the obligation for e-commerce operators and platforms with regard to consumer data protection. Operators and platforms have to publish the rules for data use and have to ask for the user’s consent for these regulations before collecting or storing these data. This also holds for amendments to the operator’s data policy (Art 46).
According to Art. 45, the customer retains the right to his or her personal information. This includes name, ID, address, contact information, such as e-mail or phone number, buying history, financial data, as well as other information which can provide clues on the customer’s identity or whereabouts.
Businesses have to establish an internal control mechanism to protect their customer’s data in order to avoid leakages or data theft (Art. 49). They are further obliged to anonymize information when sharing with other service providers (Art. 50).
The law also reiterates the Chinese government’s support for cross-border e-commerce. As Art. 68 states:
“The State promotes the development of cross-border e-commerce, supports the legal operations of small-and-medium-sized enterprises engaged in cross-border e-commerce, cross-border e-commerce comprehensive service providers and enterprises engaged in relevant services.”
The law also aims at a further electronisation of cross-border e-commerce and allows for the use of electronic documents during the procedures at the State Import and Export Administration (Art. 70).
Implications of the law for e-commerce vendors in China
Businesses engaging in e-commerce in China, or those planning to do so, should make sure that either, in case they are operating from abroad and via a 3rd party platform, their products and trademarks are protected in China, or, if they want to enter the Chinese market, their businesses are officially registered!
To ensure that your e-commerce activities in China are fully compliant, ECOVIS Beijing is now offering a cybersecurity health check. We can verify if your platform operator has qualified licenses and whether it qualifies for online payments. We are also able to assess the cybersecurity of online trading or the security of the payment process. Furthermore, we review the lawfulness of the collection of personal information or the process of collecting, transmitting or storing data. Finally, we can evaluate whether the public and/or corporate server complies with the law.
For more information regarding the new e-commerce law please contact us.
Richard Hoffmann is a partner at ECOVIS Beijing China. Richard obtained an honors degree in law and worked in Germany, the United States, and China for various prestigious law firms prior to joining ECOVIS. In addition to being a member of the board of ECOVIS International, he is Supervisor for the China business of a respected German company and shares his extensive knowledge to students by teaching commercial law in China at SRH Hochschule Heidelberg. He has published more than fifty articles in international magazines, frequently speaks at high profile events in China and abroad and is often invited as a legal expert by international TV stations. Contact: firstname.lastname@example.org
Ecovis Beijing is the trusted tax and legal advisor to several embassies and official institutions in China. It specializes in mid-sized international companies and is focused on tax & legal advisory, accounting and auditing. If you’re interested in finding out more about tax and legal, don’t hesitate to sign up for our Newsletter, give us a call +86 10-65616609 or contact us directly via email@example.com.