Chinese e-commerce law: new challenges and new opportunities

The E-commerce Law of the People’s Republic of China was implemented on 1 January 2019. As the first comprehensive legislation in the field of e-commerce in China and one of the first in the world, the legislation aims to protect the legitimate rights and interests of the parties in e-commerce business, regulate e-commerce behaviours and maintain market order.

Significance of promulgation

The promulgation of the e-commerce law represents China’s significant progress in the regulation of online transactions in the internet era, by unifying the legislation and law enforcement standards of the relevant national and local departments. Although clearing compliance standards will increase costs for enterprises engaged in e-commerce to a certain extent, the new law will regulate operations of such enterprises and create a good and fair operating environment.

Main contents

The e-commerce law is divided into seven chapters and 89 articles, covering regulations on e-commerce operators, the conclusion and implementation of contracts and dispute resolution. The main contents include the following parts.

Clearing the regulatory target

The e-commerce law regulates e-commerce operations conducted in China, that is, providing goods or services through the internet or other information networks, and auxiliary business services related to those transactions, such as electronic payment, logistics, etc. It shall be noted that the law does not apply to financial products and services, news information, audio and visual programmes, or publishing and cultural products that use information networks.

For operators engaged in cross-border e-commerce in China, the legislation is equally applicable, and they shall also comply with laws and regulations related to import and export, such as the customs law.

Identifying e-commerce operations

The e-commerce law restricts the regulatory body’s focus to ‘e-commerce operators’, which includes three types of subjects:

  1. E-commerce platform operators, which refers to legal persons or unincorporated organisations that provide services in respect of online business sites, transaction matching and information release etc for both or multiple parties in e-commerce transactions, such as Alibaba and Taobao.
  2. Operators on platforms, which refers to operators providing goods or services through e-commerce platforms, such as Tmall shop sellers.
  3. Other e-commerce operators, which provide goods or services through self-built websites or other online services, like telephone and TV.

Comprehensively stipulating the obligations of e-commerce operators

This includes:

  1. Obligations to protect consumers interests: to disclose information on goods or services to protect consumers’right to know and choose; to prohibit putting bundled goods or services as a default option; to guarantee data subjects’claims to information, correction, deletion and account cancellation; while displaying search results for goods or services to consumers based on their preferences or consumption habits, to provide consumers with options that are not targeted at their personal characteristics.
  2. Obligations to operate legally: to continuously display the business and administrative license information on the home page of the sales website; prohibiting the abuse of positions of market dominance to eliminate or restrict competition.

The above-mentioned general obligations of e-commerce operators are broad and comprehensive, involving telecommunications, consumer rights protection, business management, network security and personal information protection, and fair competition.

In addition to complying with the general obligations of e-commerce operators, under the law, platform operators shall assume more obligations on platform construction and management, including: implementing supervision on the operators on the platform through platform registration, identity verification, etc; establishing mechanisms for complaints and reports, and promptly accepting and dealing with those complaints and reports. Further, the legislation makes clear and detailed provisions for the ‘notice and take down procedure’of the safe harbour principle, and clarifies the ‘red flags principle’that the platform operators shall abide by.

In terms of platform business development, platform operators shall distinguish their self-operated business from business carried out by operators on the platform in a prominent manner. Platform operators are forbidden to delete consumer reviews of goods and services arbitrarily, impose unreasonable restrictions or conditions on the transactions within the platform, or collect unreasonable fees from operators on platform. For products or services ranked according to bids, the word ‘advertising’shall be stated prominently.

Impact on enterprises

As analysed above, the e-commerce law imposes different obligations on e-commerce platform operators, operators on platforms and other e-commerce operators. Therefore, enterprises should judge their own responsibilities according to their own conditions, conduct compliance self-checks and then make corresponding improvements.

For e-commerce platform operators, firstly, it is necessary to manage the sellers on platforms by strengthening the review of information about and qualifications of the sellers. Secondly, platform operators should develop and display management systems, such as seller entry agreements and platform rules. Furthermore, when the platform operators know or discover that there is a product/service infringing someone’s right or interest in the platform, they should promptly check and remove it. Also, the platform operators shall promptly respond to claims from intellectual property rights holders and take necessary measures to avoid or reduce their losses. Finally, as network operators, e-commerce platform operators must fulfil their obligations to ensure network operation security, transaction data storage and cyber security incident response plans, and provide users with the methods and procedures of enquiring, correcting, deleting their personal information and cancelling their accounts.

Operators on platforms and other e-commerce operators should pay attention to the legality of their own business operations, including avoiding putting bundled goods or services as a default option, and fully disclosing relevant information in a timely and accurate manner. Similarly, they should clarify the conditions for electronic contract conclusion, and strengthen consumer personal information protection.

With the formal promulgation of the e-commerce law, administrative organs and judicial departments in China are also conducting law enforcement activities and trials targeting the local operation of e-commerce in different cities. It is foreseeable that e-commerce will become the focus of China’s legislative and law enforcement at this stage. Therefore, we recommend enterprises engaged in e-commerce business pay full attention to corporate compliance management, comprehensively and systematically verify their e-commerce business operations and management systems, and conduct improvement work, both technical and management, to minimise the risk of non-compliance.