Since April 2011, the National Development and Reform Commission (“NDRC”) has pressed the local pricing administrations to intensify supervision and investigation of the retailing companies in connection with their pricing practice in sales promotion, and to impose severe sanctions against retailing companies implicated in pricing fraud. Pricing fraud occurs where (1) the retailing company first fabricates a purported original price, the so-called “favorable price after-rebate or after-discount” was indeed lower than purported original price, but higher than the actual original price; or (2) the retailing company launches prepaid promotional cards without disclosing additional conditions for using such prepaid quantum; or (3) the seller lures customers with low prices on product labels, shop posters or advertisements but overcharges the consumer in any manners. According to Article 4 of  NDRC’ s  Notification on Interpretation of Relevant Terms of Provisions on Interdiction of Pricing Fraud (“NDRC’ s Notification”), the actual original price is defined as the lowest transactional price among all transactions that has occurred at the same location within seven days prior to the promotion, or the last transactional price if no transaction occurs within such seven days.

Pursuant to Article 5 of the NDRC’ s Notification, it is a fabricated favorable price if the same turns out to be equal to or higher than such actual original price. Consequently, such enterprise will be charged with pricing fraud in accordance with Article 7.1 of Provisions on Interdiction of Fraudulent Pricing Practices, and subject to administrative sanction(s).As far as promotional pricing is concerned, the retailer, prior to delivering sales and favorable price information to the consumers, must ensure that the favorable price is lower than the actual original price, namely the lowest price for transactions occurring within seven days before the promotion, or the last transactional price if no transaction occurs within such seven days. The actual original price must be properly documented as well.