China’s consumer protection regime has come on leaps and bounds in recent years, and has evolved in tandem with its economic development. The days of double-digit growth in China has given way to more moderate advances – the so-called ‘new normal’ – which reflects structural adjustments that the country is currently undergoing. The two major pillars of investment and exports that once fuelled China’s breakneck growth are no longer tenable and consumer spending is now contributing a significantly larger share of GDP, a model that is both healthier and more sustainable. Michael Tan and Yang Cui of Taylor Wessing, explain how Chinese legislators have been formulating laws and regulations to help foster this new development pattern, which has naturally resulted in increased protection for consumers.

The framework

China’s consumer protection regime comprises many laws and regulations. Besides the Consumer’s Rights and Interests Protection Law (Consumer Law), the Product Quality Law and the Food Safety Law also regulate areas related to consumer protection. As the general watchdog taking care of consumer protection, the State Administration for Industry and Commerce (SAIC) has also formulated many special rules and notices that focus on increasing protection of consumer interests. In addition, Chinese media – including CCTV’s annual 3.15 Gala – has continued to play an important role in bringing consumer protection cases to the fore, as a means of encouraging law enforcement in this area.

The Consumer Law is the cornerstone of the whole regime, though. Since it was first enacted in 1993, many new consumer issues and problems emerged, yet the law itself did not evolve to deal with them. To some extent this is indicative of the country’s focus on an investment- and export-led growth model during this period. Consumer protection remained a hot topic, but didn’t yet qualify for action.

A major leap forward took place two decades later, on 25th October, 2013, when the Consumer Law was finally revised. The amendment substantially updated China’s consumer protection regime, strengthening existing areas and adding new ones, as well as aligning with recent developments in other laws, such as the Food Safety Law. The amendment also paved the way for further legislative developments in response to the increasingly challenging task of consumer protection in a modern era, which is heavily influenced by the .com economy.

Highlights

The Consumer Law has a broad coverage and regulates all business operators including manufacturers, retailers and service providers. For the first time, financial products and services provided to consumers are also covered by this law. It prohibits business operators from imposing unfair and unreasonable trading terms, including coercive sales. Businesses are also obliged to take care of consumer safety, with the law now addressing restaurants, banks and ports in addition to hotels, shopping malls, airports, public transportation stations and cinemas. With regard to defective products or services, the new law outlines specific measures which business operators must take including halting sales, publishing alerts, recalling goods, innocuous treatment (Ensuring that they cause no harm, including pollution), destroying goods and suspending production or services. Another noteworthy change is that if a consumer makes a complaint about the quality of a product or service within six months of the purchase, business operators now have to assume the burden of proving that there is no deficiency. This obligation applies to sales involving durable goods – like vehicles, computers, household electrical appliances – or refurbishment services.

Besides a strengthened stance in conventional consumer protection areas, another highlight of the new Consumer Law is its focus on emerging consumption trends, in particular online shopping and purchases made via telephone and TV. Consumers have been granted a right to return their purchase within seven days, without needing to state a reason, provided the goods are kept in good order. Exceptions are customised products, live or perishable products, digital soundtracks/videos that have been downloaded or unsealed, delivered periodicals or other goods that have been explicitly exempted from such a return policy beforehand.

Personal data security and privacy protection is another important feature of the new law. This topic really gathered weight in recent years and has attracted constant attention. It started when the National People’s Congress issued a decision outlining some major data protection principles, including legitimacy, transparency, consent and proportionality. The new Consumer Law further expands this in the context of consumer protection. Irrespective of whether it is online or not, personal information and privacy shall generally be protected by following the below guidelines:

  • The collection and use of consumers’ personal information shall be “legitimate, proper and necessary” and shall not violate laws and regulations or agreements between the parties.
  • The purpose, method, scope and related rules of information collection and use shall be disclosed and consented to by the data subject prior to data collection.
  • A business and its staff shall keep the personal information collected strictly confidential and secure and shall take immediate remedial measures in case of data breach.
  • Businesses shall not spam consumers with electronic information of a commercial nature without consumers’ request or consent, or if expressly requested not to do so.

A striking development under the new Consumer Law is its additional weaponry to curb consumer data breaches. In addition to normal civil remedies such as compensation or damages, administrative sanctions were introduced for the first time in China. These include being ordered to rectify the breach, issuing warnings, confiscation of illegal gains, a fine of up to ten times any illegal gain (or up to CNY 500,000 if none) and, in extreme cases, shutting down and de-registering the business.

Challenges

There is no doubt that increased consumer protection brought about by the new Consumer Law has its positive side. However, it also raises some controversial issues that create a very challenging business environment for B2C players. One such challenge comes in the form of so-called ‘professional consumers’ – individuals that knowingly buy fake or deficient products and then resort to claiming punitive compensation through the court system. Article 55 of the new Consumer Law stipulates that punitive compensation of up to three times the cost of the goods may be due, with a minimum of CNY 500 applying to fraudulent sales. As far as food products are concerned, this fine could go up to 10 times the cost of the goods. Many ‘professional consumers’ therefore actively seek cases involving false or watered-down sales descriptions in order to make a profit, in particular since the Supreme People’s Court (SPC) endorsed such practices by issuing on a judicial interpretation regarding food and drug cases on 23rd December, 2013. Although the SPC has not yet officially extended this endorsement to all consumer-related cases, results of most trials by local courts indicate cases will not be jeopardised if they are launched by a career ‘fake-buster’.

Another challenge B2C players might face is potential class action in China. Article 47 of the new Consumer Law empowers the China Consumers’ Association (CCA) to launch litigation against a case which harms the legitimate interests of many consumers. A recent amendment to the Civil Procedural Law in 2012, further paved the way for this kind of litigation. Although this is not yet a full equivalent of a class action lawsuit in a Western jurisdiction, and the exact practice is yet to be built up, the growing importance of the CCA under the new law, as well as the technicality offered by such new laws, will expose B2C operations to increasing pressure in the foreseeable future.

China’s new consumer protection regime, as substantiated by new rules, reflects the country’s determination to gradually transform its development model into a more sustainable one by boosting and relying more on domestic consumption. This goes hand in hand with the so-called ‘supply-side reform’ that is taking place in order to earn and reshape consumers’ trust in China’s domestic market. It appears challenging for all business operators including European players, but also demonstrates the great potential that China’s consumer goods market holds, particularly when considering the advantage that many European brands hold in terms of reputation and quality.