China: e-commerce law – impact on cross-border online business

In view of the rapid growth of online trade, the Chinese government adopted the first e-commerce law on the comprehensive regulation of online business on 31/08/2018, which will enter into force on 01/01/2019. All companies that distribute their products in China will be affected. These should familiarise themselves in good time with the provisions of the new E-Commerce Law.

Important aspects
The E-Commerce Law confirms the support of the continued development of the cross-border e-commerce business and the improvement of the administrative law provisions with regard to import, customs clearance and taxation as well as payment transactions by the Chinese state. The latter explicitly encourages small and micro-enterprises to participate in cross-border online trading, however, it provides that all retailers generally require a business licence in order to participate in online trading. In addition, online retailers will in the future be obligated to pay taxes on the turnover generated. Operators of online market spaces must therefore check the identity of the online retailers and forward the relevant information to the tax authorities. According to the new law, foreign companies may not participate directly in online trading, but only via Chinese e-commerce platforms; alternatively they must have a branch in China or a Chinese partner in order to participate.

Data protection is also a focal point of the E-Commerce Law. Both online retailers and operators of online market spaces must make their data storage guidelines publicly accessible. Data storage is only permitted with the express consent of the consumer.

Another central aspect is the strengthening of industrial legal protection in online trading business. The law provides that operators of online market spaces must take suitable measures to prevent trademark infringements and false advertising. For example, after receipt of the notification of a legal violation by one of its online retailers, the operator must promptly take appropriate measures, such as the deletion of information, or disabling of links. If the operator of the online marketplace fails to comply with this obligation, then it is jointly liable towards the rights holder for any additional damages incurred, together with the online retailer. The operator also risks being fined up to RMB 500,000.00, in serious cases up to RMB 2 million. However, the law does not specify what a particularly serious case would be.

In view of the ongoing boom for years in online trading with an annual growth of almost 30%, the regulation of this economic sector was overdue. Competition and trademark infringements in the online trading business have become commonplace, but the fight against these is problematic not least due to the many non-identifiable online retailers. Obligating the Chinese operators of online trading platforms, verifying the identity of online retailers and preventing competition and trademark infringements is an important step towards making online trading business legally safer. It remains to be seen whether the legally prescribed legal protection is effectively implemented in practice.

Author: Raymond Kok