By Winnie Jin, Content Marketing Associate
Over the past several years, the Chinese government has turned its attention toward greater regulation of advertising, and more recently of online advertising. Following in the footsteps of the amended Advertising Law implemented in 2015, the State Administration of Industry and Commerce’s (SAIC) Interim Measures for the Administration of Internet Advertising came into effect on September 1, 2016. The new regulation clarifies what content is considered “internet advertising,” lays down rules for “publishers” of online advertisements, and outlines investigation measures and penalties for violators. Given the ubiquity of online advertising in China, the regulations will have a widespread impact on the actions of advertisers and platform operators.
What qualifies as “internet advertising”?
According to the regulation, internet advertising encompasses the following activities:
- Product promotion via text, pictures, videos, links
- Email advertisements
- Paid search advertisements
- Advertisements within commercial presentations
In practice, any digital content placed on any online platform with the intent of promoting a product or service could be subject to the regulation.
Who is an internet advertising “publisher”?
The regulation identifies individuals or groups called “publishers” who hold the responsibility of complying with the online advertising rules (and are subject to penalties when in violation). Any entity conducting the following activities is considered an internet advertising “publisher”:
- Displaying or submitting internet ads
- Verifying or moderating submitted ads for publishing
Notably, this group includes both content creators and platform operators such as search engines or content sharing platforms that host third-party advertisements.
Products and services requiring approval
The Interim Measures for the Administration of Internet Advertising applies to products and services under the same scope as the preexisting Advertising Law, which has been in effect since 2015. The new regulation reiterates the online advertising restrictions included in the Advertising Law, prohibiting online advertisements for prescription drugs and tobacco products. The regulation also states that the following products require review before being published online:
- Medical treatments
- Foods for special medical purposes (FSMP)
- Medical devices
- Veterinary drugs
- Dietary supplements
Effects of the Regulation
Implications for Advertisers
The regulation holds advertisers responsible for the veracity of their content. In addition to this, advertisers are prohibited from engaging in deceptive or disruptive online advertising tactics and from unfair competition tactics.
To avoid disrupting internet users, a one-click close option is required on pop-up advertisements. Advertisers are not allowed to send advertisements in emails without permission from recipients, and email advertisements must include opt-out links. Additionally, advertisers may not use disruptive tactics to entice users to click on links, either in emails or on web pages.
Under the regulation, advertisers are also barred from using unfair competition methods such as interfering with the display of competitors’ advertisements using applications or network devices.
Implications for Platform Operators
Platform operators are given the responsibility to monitor the third party advertisements they post and can be subject to the same or steeper penalties that advertisers face in cases of violation. Under the regulation, advertisements must be clearly labeled so that users can differentiate between advertising and non-advertising content. Similarly, search engines are required to differentiate clearly between paid and organic search results.
If a third party wishes to advertise on an online platform, the platform operator is responsible for verifying the identity of the advertiser and removing illegal advertisements. This will result in notable revenue loss for search engine providers like Baidu, which are legally required to reject illegal advertisements and their accompanying revenues. The regulation also requires that platform operators employ an advertisement review team to examine both the contents of the advertising and the qualifications of the advertiser.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.
Establishing & Operating a Business in China 2016
Establishing & Operating a Business in China 2016, produced in collaboration with the experts at Dezan Shira & Associates, explores the establishment procedures and related considerations of the Representative Office (RO), and two types of Limited Liability Companies: the Wholly Foreign-owned Enterprise (WFOE) and the Sino-foreign Joint Venture (JV). The guide also includes issues specific to Hong Kong and Singapore holding companies, and details how foreign investors can close a foreign-invested enterprise smoothly in China.
Selling, Sourcing and E-Commerce in China 2016 (First Edition)
This guide, produced in collaboration with the experts at Dezan Shira & Associates, provides a comprehensive analysis of all these aspects of commerce in China. It discusses how foreign companies can best go about sourcing products from China; how foreign retailers can set up operations on the ground to sell directly to the country’s massive consumer class; and finally details how foreign enterprises can access China’s lucrative yet ostensibly complex e-commerce market.
China Investment Roadmap: the e-Commerce Industry
In this edition of China Briefing magazine, we present a roadmap for investing in China’s e-commerce industry. We provide a consumer analysis of the Chinese market, take a look at the main industry players, and examine the various investment models that are available to foreign companies. Finally, we discuss one of the most crucial due diligence issues that underpins e-commerce in China: ensuring brand protection.