China’s New Online Trading Regulation

On 15 March 2014 the new Regulation on Online Trading (“Regulation”) will come into effect. This Regulation was adopted by the State Administration for Industry and Commerce (“SAIC”) and shall replace the current “Interim Regulation on Online Goods Trading and other Related Services”. The new Regulation intends to improve the whole framework, in particular regarding the policy to grant an unconditional right to return the goods, protection of consumer privacy, unfair competition conducts, credit ranking system as well as a consumer protection fund.

Foreign Investors have Access to Chinese Online Trading Market

The Chinese online trading market is already open to foreign investment. Since 2004 the Ministry of Commerce (“MOFCOM”) has allowed foreign invested enterprises (“FIE”) to run retail business in the way of online trading, however, an approval by MOFCOM was still necessary. Further liberalization came in 2010: foreign invested manufacturers and trading companies may directly run online trading business, while the foreign investment in pure online trading business still needs to be approved. Upon this background, the new Regulation brings highlights which are also relevant for foreign investors.

In respect of online trading providers, the Regulation generally distinguishes between Traders, Platform Operators and Other Service Providers.

Online Trading Operator

As regards Traders, the real-name system shall be established, in particular for natural persons who run their online trading business through an online trading platform of a third party. The new policy to grant an unconditional right to return the goods is favorable for consumers; however consumers have to pay the postal fee for returned deliveries, and furthermore several goods are excepted, e.g. tailor-made products, fresh wares, digital products and newspapers. Another highlight is that online Traders or other Service Providers may not eliminate or restrict the legal rights of consumers, for instance the unconditional right to return the goods. Also in respect of unfair competition conducts, the Regulation supplements to a certain extent the existing rules of the Anti-Unfair Competition Law by way of adding certain conducts like deletion of unfavorable comments, stating a false trading volume, giving malicious comments to competitors.

Online Trading Platform Operator Perspectives

As regards Platform Operators, the Regulation emphasizes the monitoring responsibilities. These include, in particular, the check and registration of Traders, the contract and information obligations regarding Traders, the transparency and announcement rules and the monitoring of business conducts of Traders. Platform Operators should establish rules for consumer disputes and protection of consumer rights. For instance, a consumer has the right to require the Platform Operator to provide conciliation services for disputes arising out of trading through this platform. Moreover, the Regulation encourages Platform Operators to establish a credit ranking service and a consumer protection fund, which are not obligatory but show the expectation of the legislation.

Perspectives

Since the acquisition of the Chinese online supermarket Shanghai Yishiduo e-Commerce Co. Ltd. by the American supermarket giant Wal-Mart in 2012, the Chinese online trading market has become a new battle field for domestic and foreign investors. The new Regulation improves the whole legal framework significantly, enhances consumer protection and at the same time challenges all market players in legal and management compliance issues. Even the SAIC, as the authority in charge, needs time to get more experienced in related regulatory issues. The business model of online trading offers more transparency and eases the burden of evidence and simplifies authority inspections. Due to the significant trading volume, covered geographic area and large range of consumers, this business model may result in an increase of private litigation.