China recently unveiled the “People’s Republic of China E-Commerce Law” that will take effect January 1, 2019. The results will be mixed. A new e-commerce law known as the “People’s Republic of China E-Commerce Law” will take effect in China on January 1, 2019. The law will have implications for various parties.

What is China’s New E-Commerce Law?

The new e-commerce law affects mainly three types of entities: e-commerce platforms, operators on e-commerce platforms, and online merchants selling through their own websites. The law is quite comprehensive and covers the definition of e-commerce activities, protection of intellectual property, protection of consumers’ rights and other areas.

Broader Definition of E-Commerce: More Than Traditional E-Commerce Platforms

The new law defines e-commerce as operational activities to sell goods or provide services via information networks such as the Internet. The new law further specifies e-commerce operators to be individuals, companies and organisations that carry out e-commerce, including e-commerce platform operators, merchants operating on the e-commerce platform, and others selling goods via self-constructed websites. This implies that in addition to e-commerce platforms such as Taobao and JD.com, social e-commerce platforms such as WeChat and short video app Douyin will also be covered by the new law.

New Law Gives Consumers Clear Company and Product Information

The new law requires all business operators and e-commerce platforms to be registered and licensed with the State Administration for Industry and Commerce (SAIC), which also requires operators publicly disclose their license and identity information on their websites and to platform operators. As such, individual-run online merchants would also need to obtain business licenses to operate. The new law also requires e-commerce operators to fully and accurately disclose to potential consumers information about goods and services provided. This includes a number of measures designed to protect consumers by:

• Banning practices such as hiring agents to write positive reviews.
• Prevent luring consumers to write favorable reviews by offering monetary returns.
• Prohibiting  the creation of fake transaction records.
• Forbidding deletion of unfavorable comments.

New Law Requires E-Commerce Platforms to Share Liability

Previously, individual merchants on e-commerce sites were held solely responsible if they sold counterfeit goods. Now, e-commerce platforms will share joint liability if fake or low-quality goods are being sold on their sites. Under the new law, platform operators are obliged to examine business operators’ qualifications, and also to ensure that goods and services meet certain health and safety standards. In case of non-compliance, consumers can seek compensation directly from platform operators, followed by reimbursement from online merchants.

New Law Levels the Playing Field by Regulating Unfair Competition

The new law states that e-commerce operators are forbidden from abusing their positions to restrict and limit market competition through their number of users and technological advantages. Furthermore, platform operators will be prohibited from imposing unreasonable restrictions, conditions or fees on merchants. These two aspects of the new law are designed to protect merchants, leveling the playing field between large and small players.

New Law Regulates “Daigou” and Facilitates Cross-Border Purchases

“Daigou,” which literally means “buying on behalf of,” refers to shoppers buying imported products online to avoid import tariffs for consumers in China. The new law, while making it mandatory for daigou shoppers to register and pay taxes, also requires them to ensure credibility of their merchants and assess the safety and authenticity of goods more carefully. Further, the law also raises the tax-exemption limit for cross-border purchases:

• The single purchase limit will increase from ¥2,000 to ¥5,000.
• The yearly purchase amount will increase from ¥20,000 to ¥26,000.
• The single purchase of amount under ¥5,000, or the yearly purchase of amount of less than ¥26,000, will be exempted from import duty, and receive a 30% discount on consumption tax and VAT.

With increased regulations for daigou, the exemption of import duties and discounts on consumption tax and VAT for cross-border purchases falling within the increased limits,  we expect a shift of e-commerce traffic from daigou to direct cross-border e-commerce.

Key Takeaways

The new e-commerce law will impose stricter regulations on e-commerce businesses, offer better consumer protection and create greater opportunities for foreign merchants looking to sell into China.  At the same time, platform operators will need to ensure the goods sold by third- party merchants on their platforms comply with the new rules.