The Chinese government’s new draft law and Alibaba’s stand against counterfeiting

Currencies Direct January 23rd 2017 - 4 minute read

The land of opportunity

At the end of 2015, China had 668 million Internet users – more than double the population of the United States. It is home to the world’s biggest[1] online audience, wired into the largest and most dynamic e-commerce market.

Chinese consumers make up almost half of all global online retail sales, and that figure is growing: online retail sales amounted to $581.61 billion in 2015, rising 33.3% over the previous year. The volume of online sales in China exceeds that in the US, and is expected to grow 20% annually by 2020.[2]
But while this presents a huge opportunity, online selling – and cross-border online selling in particular, is not obstacle free.

Indeed Lyu Zushan, deputy director with the National People's Congress (NPC) Financial and Economic Affairs Committee, stated recently that booming e-commerce in recent years had served to reveal loopholes in China's legal system and commercial rules.

The result is that China’s legislature is deliberating a draft law designed to facilitate e-commerce growth, help maintain market order and protect consumer rights. It is far-reaching, with some 94 provisions, and it will be the first law to focus purely on e-commerce. While it is currently a draft, it is expected to be approved and put into force within the next year.

Full details can be accessed here, but we pick out some of the highlights:

 

Closing the loopholes

The principal aims of the draft[3] law are to:
 

  • Ensure e-commerce  operators are properly licensed and identifiable

As for traditional businesses, a business licence must be held to conduct online business – although there are some exceptions to this requirement, such as for family-made handicrafts and sales of home-grown agricultural products.  

When the e-commerce business is operating through a third party platform, the owner must provide their real name, address, ID certificate and contact information to that platform.
Online operators must also pay taxes.
 

  • Clarify the obligations and liabilities of third-party online platforms

Platforms will be obliged to:

  • review and supervise operators on its platform
  • put in place and enforce transparent rules
  • record and store important information
  • allow operators to leave

 

  • Set out the liabilities and obligations of online payment service providers

Real-name registration will be required for all payment accounts.
Payment service providers should offer free statements and retain transaction records for three years.
And, in a major breakthrough in online payment law in China, if online payment service providers breach statutory requirements for financial information security management, they could be liable for any losses that result. They could also be liable for any losses resulting from unauthorised payments – unless they can prove that these have been caused by the payment recipient.
 

  • Improve personal information security

This applies not only to online sellers but also to platforms, e-payment providers and logistics service providers.  Sound internal control systems backed by the appropriate technology must be in place to ensure the safety of e-commerce data. An individual’s consent will be necessary before collecting any personal information and the use of illegal or fraudulent ways of collecting such data is prohibited.
Violators could be fined RMB 500,000 and could have their business license revoked.
 

  • Require indemnification by delivery and logistics service providers

For example, express service providers may have to pay compensation if a parcel is delayed, damaged or lost.
 

  • Prohibit actions by sellers designed to manipulate ratings

These include:

  • the use of fake transactions
  • deleting unfavourable ratings/reviews
  • buying favourable reviews
  • threatening consumers to revise or delete negative reviews
  • publishing false evaluation information

Sellers who do not comply could ultimately face fines of up to RMB 500,000 and could have their business license revoked.
 

  • Improve regulation of cross-border e-commerce

Currently sellers outside China are able to sell directly to Chinese consumers, so bypassing (legally) a number of Chinese laws and regulations applying to the sale of goods.

The new draft e-commerce law provides support for cross-border e-commerce (improved efficiency in customs clearance for example and provision for electronic documents to be considered as legally valid as paper documents), but clarification will still be needed in some areas: should the China quality standard or a foreign standard be applied to imported goods? Do Chinese labelling standards apply?
 

  • Encourage intellectual property protection

The draft law also includes a requirement for e-commerce operators to work to protect intellectual property and for e-commerce platforms to offer technical support for "law enforcement activities by relevant authorities."

 

Intellectual property protection: addressing a perennial problem

This latter point leads in nicely to the recent announcement from Alibaba that it is suing two merchants on one of its e-commerce platforms for selling counterfeit goods[4]. The news came just two weeks after Alibaba Taobao was again blacklisted by the U.S. government for “an unacceptably high level of reported counterfeiting and piracy” – seemingly the push needed for Alibaba to act.
 
Counterfeiting is a major problem in e-commerce. It is particularly rampant in China, although it is not unique to that country or restricted to the marketplaces there:  Amazon has also recently taken a hard-line stance to counterfeit goods, filing lawsuits in November against two vendors in an effort to deter other sellers from listing fake goods.

Prior to the blacklisting decision, Alibaba said it had tightened policies against copyright infringement and made it easier for brands to request fakes be removed. The company claims to have taken down 380 million product listings and closed about 180,000 Taobao stores in the twelve months to August 2015. It has additionally closed about 675 production, storage, or sales operations of counterfeit products.[5]

Alibaba says it employs 2,000 permanent staff and 5,000 volunteers to help find counterfeit goods, and also uses data and artificial intelligence to root out fake items. A hard-line stance against copyright infringement is crucial to the company’s efforts to gain the trust of overseas markets – particularly given ambitions to expand revenues dramatically outside China.

 

The impact on cross-border online trade

Will the new law, once implemented, combined with a more rigorous approach to counterfeiting from China’s largest third-party marketplace benefit cross-border sellers looking to China as a market?

Certainly, the improved regulation, higher levels of consumer protection and enforcement of action against prohibited activities by sellers and marketplaces – combined with a seeming willingness from the largest platform to take intellectual property protection more seriously, should be reassuring.

Watch this space: 2017 could be a very interesting year!
 

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