On 15 March 2015, the Measures for Punishments Against Infringements on Consumer Rights and Interests(“Measures”) issued by the State Administration for Industry and Commerce of the People's Republic of China (“SAIC”) came into force. This happened exactly one year after a revised version of the Law on the Protection of Consumer Rights and Interests (“CPL”) took effect on 15 March 2014, raising consumer protection in China to a new level (please refer to our newsletter on the CPL). By releasing these Measures, the SAIC aims to provide practical guidance to the authorities how to implement the CPL, how to punish violations, and how to interpret certain vague provisions and terms of the CPL. The Measures will also play an important role in potential civil law disputes.

The most important content of the Measures is set out below.

1. Fraud or no fraud – reversed burden of proof

One of the main objectives of the CPL is to protect consumers against the fraudulent actions of business operators. Accordingly, certain consumer rights are only granted if business operators have committed fraud. Article 55 of the CPL stipulates that if business operators commit fraud in providing goods or services, they shall pay to the affected consumer a compensation of three times the respective purchase price. Just imagine the compensation that a company would be liable for on a high-end automobile, given today’s high prices in this sector in China.

However, the term “fraud” has not been defined in the CPL.

The new Measures do not only provide examples of fraud, but also combine them with a reversed burden of proof. Under general legal principles, each party invoking a certain fact in a civil law dispute should provide evidence for such.  According to the above, a consumer asserting fraud on the part of a business operator should provide and prove facts evidencing such fraud. However, Article 16 of the Measures stipulates that a business operator shall be deemed to have practiced fraud if it commits certain acts and is unable to prove that such acts were not committed to deceive or mislead consumers.

These acts are listed as:

  • Providing goods or services that fail to meet safety standards, are ineffective, or have deteriorated.
  • The display of incorrect places of origin, factory names, addresses, production dates, certification marks, and other quality marks.
  • Infringing upon trademarks or using the specific names, packaging, and appearance of well-known commodities.

In all of the above events it is the business operator’s duty to prove that such acts were not committed to deceive or mislead consumers. This may be huge burden for them requiring disclosure of confidential internal documentation and communication. 

Apart from the above, the Measures also contain a comprehensive list of fraudulent acts without granting the business operator a right to prove that such acts were not committed to deceive or mislead consumers. Some of such acts are listed below:

  • Not providing the true name and mark for goods.
  • Sale of goods explicitly ordered by the State to be withdrawn from sales.
  • Collecting payment without delivery.
  • Deceptive pricing.
  • Concealment of quantity or quality.
  • Needless replacement of parts and components

2. 15 Days to Rectify the Situation

Under the CPL, business operators shall not deliberately delay providing the repair, remanufacture, replacement, return of goods, making up quantity shortages, refunding the purchase price or compensation for losses (the “Remedies”). If they do so, the authorities are entitled to impose fines up to RMB 500,000, confiscate illegal profits, and even cancel the operator’s business license. 

However, there is no guidance in the CPL on what constitutes a deliberate delay.

According to Article 8 of the Measures, a business operator shall be deemed to have deliberately delayed satisfying, or unjustifiably refused to satisfy the Remedies if they have not complied with them within 15 days from the date that the consumer made the request.

Article 9 of the Measures imposes the same 15-day time limit for complying with the consumer’s seven-day unconditional right of return (with full refund of the purchase price) for products sold online. This right has been introduced into Chinese law for the first time when the CPL took effect on 15 March 2014.

Finally, Article 10 of the Measures sets a time limit of 15 days for the return of advance payments collected by business operators from consumers when the business operator fails to provide the agreed upon goods or services. This 15-day period starts on the date when the consumer requests a refund.

3. New Guidance On Standard Terms

The CPL requires that standard terms, notices, declarations, shop bulletins or other materials (the “Standard Clauses”) do not impose any conditions on consumers that exclude or restrict the rights of consumers, reduce or waive the liabilities of business operators, or infringe upon the liabilities of consumers.

The Measures now list six non-exhaustive categories that exemplify prohibited Standard Clauses:

  • Exempting business operators from the obligation to perform Remedies.
  • Excluding or restricting the rights of consumers to request Remedies.
  • Excluding or restricting the rights of consumers to file complaints or lawsuits in accordance with the law.
  • Compelling consumers to purchase and use goods or services provided by certain designated business operators.
  • Entitling business operators to modify or rescind contracts at their discretion or restricting the rights of consumers to modify or rescind contracts in accordance with the law.
  • Entitling business operators to unilaterally enjoy the power of interpretation or final interpretation of contractual terms.

4. Authority in charge

The competent Administration for Industry and Commerce (“AIC”) is in charge of imposing punishments under the Measures. In addition to penalizing, the Measures stipulate additional tasks of the AICs, e.g. to provide administrative guidance to business operators through the education, supervision, and demonstration of their statutory obligations. Penalties will be recorded in the credit files of the business operators and be promptly made public through the enterprise credit information system and via other channels. This increases the risk of unwelcome publicity for business operators in the event of a problem.

5. Conclusion

The new Measures will be of high practical relevance for business operators in China, especially foreign-invested enterprises (“FIEs”). As the Chinese consumer protection authorities frequently place FIEs under scrutiny, they should take the new Measures into regard when drafting and evaluating their quality management systems and sales practices. In addition, the new guidance on prohibited Standard Clauses should give reason to review and update their B-to-C standard terms and conditions used in China.