China's New Advertising Regulations
China’s revised Advertising Law of the People’s Republic of China, effective as of 1 September, 2015, represents the first major revision since being enacted in 1995.
China and the world has changed drastically since then in terms of technologies, medicines and goods and services, therefore an updated advertising law was long overdue. The new Advertising Law is aimed at standardizing advertising activities, protecting the lawful rights and interests of consumers, facilitating the healthy development of the advertising sector, and maintaining the social and economic order.
The new Advertising Law significantly expands the regulation of advertisements for specific products, including:
1. medicine, medicinal treatment and medical devices;
2. pesticides, veterinary medicine, fodder and fodder additives;
3. tobacco and alcohol;
4. education and training;
5. products or services that promise return on investment;
6. real estate and listings; and
7. seeds for cultivation and animals for breeding.
Regulating False Advertisements
While the previous Advertising Law merely stated that a false advertisement is one that deceives or misleads consumers, or damages consumer interests, it did not offer a further definition. The new Advertising Law, however, provides for types of false advertisements under Article 28, including the following cases:
1. the commodity or service does not exist;
2. the commodity performance, function, origin, usage, quality, specifications, ingredients, price, manufacturer, valid period, sales and awards, among others, or service items, provider, format, quality, price, sales and awards, among others, or promise related to the commodity or service, among others, does not match the actual situation and has a material influence on the purchase decision;
3. using fictional, falsified, or unsubstantiated scientific research, statistics, survey, excerpt or quotation, as supporting material;
4. fabricating efficacy of using the commodity of service; and
5. other situations in which false or misleading content is used to cheat or mislead consumers.
The production of a false advertisement may have many consequences under Articles 55-57, which includes the following actions by the Industry and Commerce Administration Department:
1. a demand made to cease publications of the advertisement;
2. a demand made to mitigate the influence within a due scope;
3. an issue of a fine ranging from three to five times of the advertising cost, or in cases where the advertising cost is difficult to calculate, a fine ranging from RMB 200,000 to RMB 1,000,000;
4. to bear civil liability where the advertiser intended to cheat and mislead consumers and cause detriment to the lawful rights and interests of consumers who purchased the commodity or received the service; and
5. to order the cancellation of the advertiser’s business license.
Furthermore, if there was actual or constructive knowledge by the advertising agent or distributor that the relevant advertisements were false, the advertising agent or distributor shall suffer the same consequences, or joint liability.
The revised Advertising Law prohibits certain content in advertising under Article 9, including the use of words such as ‘national-level’, ‘the most’, and ‘the best’, among others. Directly relevant to this was the recent case against Xiaomi Inc, who was investigated for violating several provisions under the revised Advertising Law preventing advertisements from exaggerating products.
Xiaomi Inc. is a privately owned Chinese electronics company, and is the world’s fourth largest smartphone maker, involved in designing, developing, and selling smartphones, mobile applications, and related consumer electronics. Recently, Xiaomi Inc. came to the government’s attention via a whistleblower, who reported to the Chinese government of suspicious activity located on Xiaomi Inc.’s website. Therefore, they are currently being investigated by the Beijing Ministry of Industry and Commerce over the use of superlative adjectives for promoting products, namely of the term ‘best’, which Xiaomi Inc. had used in some of its advertisements for its products. If found guilty, Xiaomi Inc. may face a fine of a minimum of USD 31,000, which will set an example for potential offenders of China’s seriousness in the enforcement of the revised Advertising Law.
Furthermore, it can be seen from the recent Xiaomi Inc. case that investigative powers have been granted to the Administration for Industry and Commerce, which have also been expanded to give the authoritative body far-reaching powers under Article 49 to:
1. conduct on-site inspection of premises that is suspected of engaging in illegal advertising activity;
2. enquire a party suspected of an offence, or its legal person, key executive and other relevant personnel, and investigate relevant organisation or individual;
3. demand a party that is suspected of an offence to provide supporting documentation within a specific deadline;
4. review and duplicate contract, voucher, bookkeeping, advertisement, and other relevant material that relates to the suspected illegal advertising;
5. close down and seize financial and material resources that are directly related to the suspected illegal advertising, such as commodity being advertised, operation tools and equipment;
6. demand temporary ceasing of publishing suspected illegal advertising that has the potential to cause severe consequences; and
7. other powers as provided in the laws and regulations.
Therefore, the new Advertising Law places a heavy emphasis on the prohibition of false advertising intended to cheat and mislead consumers. The Chinese government has shown its seriousness by already using the revised Advertising Law to enforce the relevant provision to investigate Xiaomi Inc., therefore demonstrating its intention to regulate false advertisements heavily.
The revised Advertising Law indicates China’s intention to strengthen consumer protection by prohibiting undesirable advertising activities. With its wide scope and comprehensiveness, it can be expected for the Chinese government to further produce supplementary regulations and interpretations to assist and provide further guidance on the application of the new law. Therefore, it is advisable for businesses both domestically and internationally to take note of the revised Advertising Law to ensure maximum compliance, especially in light of the potential regulatory enforcement.
ABOUT THE AUTHOR: Yu Du
Yu Du has a Bachelor of Laws and Master of Laws from the China University of Political Science and Law. Yu Du joined MMLC in 2008. Immediately prior to joining MMLC, Yu Du worked as Asia legal counsel for a major Chinese media company, focusing on business transactions and IP matters.
Yu Du would like to thank Joyce Chng for her contributions to this article.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.