Ten China Commercial Highlights 2016 series:

Better business regulations, better consumption environment

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Fung Business Intel l igence Centre

Industry and Commerce (SAIC) handled 77,800 complaints

concerning online purchasing, up 356.6% year-on-year

(yoy). Moreover, of the total 20,135 complaints regarding

remote shopping handled by the China Consumers’

Association, 92.3% of cases were related to online

purchasing. According to data from the Supreme People’s

Court of China, consumer complaints about online

shopping filed with the People’s Court of Chaoyang District

in Beijing increased more than threefold since the

introduction of the new Consumer Protection Law in March

2014.

Online marketplaces become a breeding ground for shoddy and counterfeit products Along with the surge of consumer complaints over online

purchasing, issues regarding shoddy and counterfeit

products sold on online marketplaces are also among the

chief concerns. In 2014, the General Administration of

Quality Supervision, Inspection and Quarantine of China

(AQSIQ) carried out random quality inspections on 14

types of consumer products traded online. Almost a third

of these products failed the quality tests. A random

inspection conducted by SAIC in 2014 also found that over

40% of products sold online were counterfeit.

Clamping down on undesirable advertising activities with tougher advertising law False, misleading and deceptive advertising claims have

been rampant in China. Over recent years, the government

has stepped up efforts to better regulate the market. For

instance, the National People’s Congress passed

amendments to the Advertising Law of the People’s

Republic of China, with effect from 1 September, 2015. The

new Advertising Law clarifies what constitutes a

misleading advertisement. Advertisements that provide

incorrect information in relation to the performance,

function, origin, uses, quality, size, composition, prices,

manufacture and expiration dates of products will be

considered misleading. The use of superlatives including

“best”, “highest”, “national level” and other terms to tout

the quality of products are banned on all offline and online

advertising. The new law also imposes tougher

punishments and penalties, signifying the government’s

determination to combat false advertising that deceives

and misleads consumers.

Better business regulations, better consumption environment

With a growing capacity for innovation and

creativity, China’s commercial sector has

witnessed extraordinary progress over recent

years: it has become a major growth driver for the country’s

economic growth and domestic consumption.

Nevertheless, business malpractices remain a major

problem for the market. In particular, food safety and

product quality issues, concerns over online purchasing

and misleading and deceptive advertising have drawn

extensive attention. This has seriously affected consumer

confidence and undermined public trust.

Product quality ranks top among all consumer complaints According to the China Consumers’ Association, a total of

292,561 consumer complaints were received in 1H15, of

which 44.6% of cases were related to product quality

issues, while 20.5% concerned after-sales services and

13.7% focused on contracts. The cases concerning

product and service quality issues accounted for over 70%

of complaints, suggesting the quality of products and

fulfillment of service pledges are the chief concerns within

the consumer goods market. Meanwhile, an increasing

number of consumer complaints were related to expiration

dates on food items. Some food producers were reportedly

changing “best before” dates on food items so that these

could be sold after the original expiration dates.

Product quality44.6%

False advertising2.0%

Others 13.8%Counterfeits 0.9%

Safety 1.0%

Pricing 3.5%

Contracts 13.7%

After-sales services 20.5%

Source: China Consumers’ Association; compiled by Fung Business Intelligence Centre

Chart 1: Types of complaints received by China

Consumers’ Association, 1H15

Complaints against online purchasing on the rise With the growing popularity of e-commerce, complaints

against online purchases have increased sharply in China

over recent years. In 2014, China’s State Administration for

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Ten Highl ights of China’s Commercial Sector 2016

What the experts sayGreater integrity and self-discipline among market participants are key to the orderly and healthy development of the

commercial sector. For business operators, the new Advertising Law and Consumer Protection Law send out a clear message

that rather than exploit consumer rights they should enhance their core competences to promote the quality of their products

and services, and foster corporate social responsibility. As a case in point, Alibaba’s online shopping platform Tmall

introduced insurance to guarantee the authenticity and quality of its products on 10 November, 2015, a day before the start of

the annual Singles’ Day online shopping festival. Such a move enables consumers who receive counterfeit products to enjoy

unconditional returns and refunds, with compensation set at four times the price paid.

A sound legal and well regulated business environment are also imperative for the growth of the commercial sector. In recent

years, the government has been working closely with local industry associations to strengthen supervision and regulation of

the consumer goods market, especially the online shopping sector. Our experts welcome the government’s action and hope

that it will further step up its effort in this area.

Our experts also believe that a regulatory mechanism needs to be launched to blacklist enterprises that have been involved in

corporate misconduct. Business operators that are blacklisted would receive appropriate punishment, or in more serious

cases even be prohibited from operating their businesses. At the same time, an incentive system could be introduced to

reward exemplary performances by business operators.

Greater integrity and self-discipline among market participants are key to the orderly and healthy development of the commercial sector.

Chart 2: Key provisions of the new Advertising Law

Key provisions Details

Prohibition of false/

misleading advertising

• Advertisements failed to provide correct information pertaining to the performance, function,

origin, uses, quality, size, composition, prices, manufacture and expiration dates of products will

be considered false or misleading

Ban on the use of

superlatives

• The use of superlatives such as “best” and “highest” as well as reference to the State such as

“state-level” or use of the national flag are prohibited on offline and online advertising

Joint liability for false/

misleading advertising

• Advertising spokespersons, advertisers, advertising agents and publishers may be jointly liable

for false or misleading advertisements

• Advertising agents or publishers risk civil liability if they fail to provide true contact information for

the advertiser(s)

• Advertising spokespersons must have used the product or service themselves before making

endorsements

Restrictions on

advertisement

communication

• Prior consent is required for electronic direct marketing or advertisements sent to home

addresses

• An unsubscribing facility as well as true and correct identities and contact details must be

indicated in electronic advertisements

Tougher controls on

advertisements for

specific products

Source: www.gov.cn; compiled by Fung Business Intelligence Centre

• Medical treatment, pharmaceutical and

medical devices

• Healthcare products

• Infant food

• Agricultural pesticides, veterinary medicines,

fodder and feed additives

• Seeds, planting and breeding

• Tobacco

• Alcoholic beverages

• Education and training

• Products or services with an expected

investment return

• Real estate

@ Copyright 2016 Fung Business Intelligence Centre, Secretariat of the Expert Committee of the China General Chamber of

Commerce (ECCGCC) and the China Business Herald Research Institute. All rights reserved.

Though Fung Business Intelligence Centre, the Secretariat of the ECCGCC and the China Business Herald Research Institute

endeavor to ensure the information discussed in this material is accurate and updated, no legal liability can be attached as to

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of the ECCGCC’s or the China Business Herald Research Institute’s prior written consent is prohibited.

Fung Business Intelligence Centre, Member of the Fung Group

Authors

Teresa Lam and Lucia Leung (Asia Distribution and Retail, Fung Business Intelligence Centre)

Contributors

Christy Li and Tracy Chan (Asia Distribution and Retail, Fung Business Intelligence Centre)

Administrator

Yu Di (Secretariat of the Expert Committee of the China General Chamber of Commerce)

For more information

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