China’s first e-commerce law to go into effect from 1 January 2019

In recent years, e-commerce has boomed in China. And with the upcoming Singles’ Day, promoted annually by Chinese e-commerce giant Alibaba and held on 11 November, we’re going to once again witness the power of e-commerce spending. The event, billed as ‘anti-Valentine’s Day’ where Chinese singletons go on a global online shopping spree, last year rung up more than US$25 billion (168.2 billion yuan) in online sales worldwide.

In response, to the rapid growth of e-commerce, the People’s First Standing Order promulgated the E-Commerce Law of the People’s Republic of China (hereinafter referred to as “the Law”) on 31 August 2018. The Law, effective from 1 January 2019, is the first to regulate e-commerce businesses, provide consumer protection and foster the development of the e-commerce industry in a sustainable, healthy manner.

E-commerce is defined by the Law as all business activities conducted on an information network to sell commodities or offer services within the territory of the People’s Republic of China. Although, items such as financial products or services, or services regarding news stories, audio or video programs, publications and culture products provided through information networks, are not subject to the Law.

Scope of e-commerce

The Law classifies three types of business operators falling into the scope of e-commerce. They include:

  1. E-commerce operators

    E-commerce operators are either natural persons, an incorporated entity or an incorporated association carrying out business activities through information networks such as the internet to sell commodities or offer services on a website developed by the e-commerce operator or through other networks, such as sellers providing goods via the Wechat platform, a multi-purpose messaging, social media and mobile payment app.

  2. Platform operators

    Platform operators are either legal persons or unincorporated associations providing online platforms for digital business, trading matchmaking, information releases and other services between two or parties to facilitate transactions. An example is of this is a shopping platform with third-party businesses providing goods or services.

  3. E-commerce operators on platforms

    Sellers are third-party businesses selling goods or services on e-commerce platforms

Business registration and obligations

E-commerce operators shall operate as a legal business entity and adhere to the relevant laws and administrative regulations required to conduct business in China. In practise, all e-commerce operators providing goods or services shall be registered as a business accordingly to relevant laws, obtain a business license — except in cases which no registration is required under laws and administrative regulations — and obtain the relevant administrative licenses and fulfil tax obligations.

Stronger responsibilities for e-commerce platforms

E-commerce platforms are responsible for providing open, fair and just services to third-party businesses on the platform. Platforms shall provide transparent service agreements and transactions rules and seek comments in prominent positions of any proposed changes to the service agreement and transaction rules, at least seven days prior to the change being implemented.

Additionally, the verification and identification of third-party businesses operating on the platform are borne to the e-commerce platform. Business and tax identification of third-party businesses shall be submitted to the department of market regulation. Any unregistered business operating on the platform will be warned by the e-commerce operators to register accordingly, following relevant provisions, laws and regulations. Violations of business and tax registration shall be reported to the related government department by the platform.

Consumer Rights and Protection

Consumers are entitled to a right to know and right of choice. Information of commodities or services shall be disclosed in a comprehensive, accurate and timely manner. And false or misleading publication, such as fictitious deals and fabricated user comments, is forbidden. Equally, comments on services or goods provided by an e-commerce operator on e-commerce platforms cannot be deleted.

Increased intellectual property protection

Infringement of intellectual property on an e-commerce platform is managed by the operator of the platform. Notice of intellectual property infringement is required to be sent to the platform and it is the responsibility of the platform to forward to the e-commerce operator. If the platform fails to forward such notice, the platform bears joint liability for damages.

Where there is an infringement, the e-commerce platform is required to take necessary measures, such as deleting or blocking relevant information, disabling relevant links and termination transactions or services. If the platform fails to implement such measures, it shall be held jointly liable with the infringing party.

Development of the e-commerce industry going into the next era will be fostered in a safer and healthier manner; the Law paves way for increased consumer protection in e-commerce sales. With the introduction of business registration for all e-commerce sellers and stricter responsibilities for e-commerce platforms, the Law tackles IP infringement and illegal business operations. E-commerce business and platform operators should be prepared and fully compliant with the Law from 1 January 2019. Particularly, business registration and tax obligations should be concluded prior to the 1 January 2019 commencement date.

If you would like more information about e-commerce or other related corporate matters, send us an email at talktous@horizons-advisory.com, and we’ll have a Horizons professional contact you.

 Horizons Corporate Advisory helps clients solve complex problems, thrive and be inherently responsible in their business activities worldwide. The countries we operate in include Belarus, Belgium, China, Colombia, Costa Rica, Cyprus, Ecuador, France, Germany, Hong Kong, Indonesia, Italy, Lichtenstein, Luxemburg, Macau, Malta, Mongolia, Netherlands, Nigeria, Portugal, Russia, Singapore, Spain, Switzerland (French and German-speaking cantons), Turkey, United Kingdom (England and Wales) and the United States of America.

 Please visit our website at horizons-advisory.com