When will things change

The existing PRC Advertising Law (Existing Law) entered into force on 1 February 1995 and has not been amended since then. With the advance of the internet and the fact that the average person is now reported to spend almost two hours per day on social media, the advertising landscape has shifted dramatically. Legislators all around the world, not just in China, are playing catch up. The amendments to the Existing Law seek to modernise the legal framework surrounding advertising and address issues which exist in modern day China that could not have been foreseen 20 years ago, when the Existing Law was introduced.

The amended PRC Advertising Law (Amended Law) was officially approved on 24 April 2015 and came into force on 1 September 2015. The Ministry of Industry and Commerce has wasted no time in enforcing the Amended Law with reports suggesting that smartphone maker Xiaomi is currently under investigation for the use of superlatives in their online ads, which is prohibited under the new regulations.

The Amended Law is part of a bigger picture. China is amending a number of its laws in the branding and marketing space to increase the protection afforded to individuals and businesses in China. The underlying aim behind all of these changes is to demonstrate that China is committed to protecting and safeguarding the rights of individuals and businesses. In May 2014, China enacted a new Trademark Law which introduced some major changes aimed at modernising trademark law in China and reducing trademark piracy, and an amendment to the Copyright Law is currently working its way through the approval process.

The Existing Law is very short and has been widely criticised for being too vague. The Amended Law is almost double in length and is much more prescriptive, with one of the key aims being to reduce the number of grey areas that exist in the advertising space in China, making compliance and indeed the imposition of sanctions for non-compliance, much more straightforward. 

This article focuses on the key provisions of the Existing Law and the key amendments which were introduced by the Amended Law on 1 September 2015.

Summary of key provisions of the existing law

The Existing Law provides that advertisements must:

  • be true and must not contain false and misleading information which cheats or misleads consumers
  • adhere to the principles of fairness and trustworthiness
  • not be detrimental to the physical and mental health of the people of China
  • not impair the physical and mental health of minors or disabled people
  • be in compliance with social morality and professional ethics and safeguard the dignity and interests of the state
  • only contain data, statistics and survey findings that are factually correct with the source being indicated in the advertisement
  • not discredit the products or services of third parties.

The Existing Law also contains specific restrictions in relation to the advertising of pharmaceutical and medical devices, agricultural chemicals, tobacco and health foods.

Summary of key provisions of the amended law

Misleading advertising

The Amended Law provides specific examples of what will constitute a misleading advertisement and thus provides further detail on the scope of what is otherwise a very broad and un-prescriptive definition. Specifically, advertisements that provide incorrect information in relation to the performance, function, origin, uses, quality, size, composition, prices, manufacturers and expiration dates of products will be considered misleading.

Children

The Amended Law introduces more controls on advertising aimed at children. All advertising in schools and kindergartens is prohibited, as is advertising in textbooks and exercise books and on school uniforms and school buses. Children under the age of 10 cannot be used to endorse products or services. Endorsement is defined as “recommending or providing testimony in support of products or services in an advertisement”. Mr. Zhang Guohua, one of the State Administration for Industry and Commerce officials responsible for the enforcement of advertising laws in China, stated in an interview that this provision does not mean children under the age of 10 cannot feature in advertisements; they just must not specifically endorse the products or services being advertised.

Furthermore, advertisements targeting children under 14 must not contain content which persuades their parents to purchase the goods or services being advertised. It is however unclear at this stage what constitutes “content which persuades” but this will hopefully be made clear when the implementing regulations are published later this year. Advertisements targeting children under 14 must also not contain content which encourages the imitation of dangerous acts. The Amended Law also prohibits the advertising of cosmetics, medicines, medical apparatus, online games, alcoholic beverages and tobacco to children.

Communication of advertisements

Advertisements must not be sent to home addresses without prior consent. In addition, other forms of electronic direct marketing are also prohibited unless an individual’s consent is first obtained. Any advertisement must also not interfere with people’s normal usage of the internet, meaning care needs to be taken when using pop-up advertising. Under the Amended Law, a pop-up advertisement must be capable of being closed in one click. Furthermore, an electronic advertisement must also include the sender’s true identity, contact details and information as to how to un-subscribe from receiving further advertisements.

Telecoms

The Amended Law imposes liability on service providers responsible for communicating advertisements which breach the Amended Law if they were aware of the content and did not take action to stop the advertisement.

Product endorsement

Anyone who endorses a product may be held jointly liable for any infringement of the Amended Law if he or she ought to have known the advertisement infringed the Amended Law. Anyone found guilty of endorsing a false advertisement can be banned for endorsing other products or services for a period of three years.

Sanctions

The Amended Law introduces wider ranging sanctions including fines of up to 1,000,000 RMB (circa US$150,000) and the imposition of criminal liability and revocation of business licenses for serious instances of infringement.

Sector-specific amendments

The Amended Law also introduces more stringent control on advertising in a number of specific areas, including the financial services and alcohol and tobacco industries.

Financial services

One of the key sector-specific amendments is in relation to the promotion of investment products. The Amended Law introduces specific requirements that businesses will need to be aware of when promoting investment products. For example, the advertisement of investment products must:

  • alert consumers to the risks involved with the product and any possible losses and liabilities they may suffer
  • not include any guarantees on future returns unless the returns are 100 percent guaranteed
  • not suggest that any capital invested is risk-free unless it really is
  • not use the name or image of academic institutions, industry associations, or professionals to give a misleading air of credibility to an investment product

Tobacco and alcohol

There are in excess of 300 million smokers in China and it is estimated that more than a million people die each year in China from smoking-related illnesses. With the recent introduction of wide spread public smoking bans, including in Beijing, greater emphasis is being placed on reducing the number of smokers in China. The Amended Law introduces specific requirements that businesses will need to be aware of when promoting tobacco products. For example, tobacco products:

  • must not be promoted in mass media, public venues, public transports, or on outdoor advertisement boards
  • must not be promoted as part of advertisements for other products or services or for charitable purposes

There has also been a change in drinking behaviour within the Chinese population. A recent national survey China revealed that of those interviewed; 62.7 percent of the men and 51.0 percent of the women reported excessive drinking; 26.3 percent and 7.8 percent, respectively, reported frequent drinking; and, 57.3 percent and 26.6 percent, respectively, reported binge drinking.

The Amended Law is one of many measures being adopted to try to reduce alcohol consumption in China and, under the Amended Law, any advertisement for alcohol:

  • must not promote drinking to excess
  • must not show the actual action of drinking
  • must not show driving cars, vessels or aircrafts
  • must not show that drinking help to relieve pressure, anxiety or tiredness, either expressly or implied

The practical implications of the amended law

The Amended Law shows a definite intent to police advertising more stringently and we believe the authorities will be keen to be seen to be zealously enforcing the Amended Law after it comes into force.

We believe close attention will be given to advertisements of products and services in those areas which the Amended Law has introduced new and wider reaching measures. As such, businesses operating in these industries should ensure they are fully cognizant of the provisions of the Amended Law in these areas and should make any changes to their operational processes that are required to ensure they do not fall foul of the Amended Law.

The Amended Law also introduces much tighter control around online and social media advertising and businesses who engage in this type of advertising in China should review their online and social media operating procedures and guidelines to ensure they comply with the Amended Law.