New Advertising Law Expected in China
By: Steven Elsinga
China’s advertising laws have not been updated for a long time, which is unusual given the rapid pace of legal reforms in the country. The Advertising Law of the People’s Republic of China was enacted in 1995, with the Regulations for the Control of Advertising dating back to 1987. China and indeed the world has changed much since then, and an updated advertising law is long overdue.
Recognizing this, China’s top legislative body, the Standing Committee of the National People’s Congress, published a new draft law in January of this year. This is the second draft law, following an earlier version that was first circulated in February 2014.
The suggested new law significantly expands the regulation of advertisements for specific products. It specifically regulates:
- Medicine, medical treatment and medical devices
- Pesticides, veterinary medicine, fodder and fodder additives
- Tobacco and alcohol
- Education and training
- Products or services that promise return on investment
- Real estate and listings
- Seeds for cultivation and animals for breeding
The current law only very broadly states that advertisements may not be harmful to children. The new proposal goes into specifics, like forbidding marketing campaigns to be held at or near schools and kindergartens, or placing ads on school uniforms, school buses or children’s stationery. In mass media programs intended for children, advertisements for medicine, cosmetics, plastic surgery, alcohol or video games are not allowed. Ads targeting kids may not induce children to demand their parents to buy the advertised products, nor encourage children to engage in unsafe behavior.
Penalties for False Advertisements
The present Advertising Law merely states that a false advertisement is one that deceives or misleads consumers, or damages consumer interests, but does not offer a further definition.
The new law provides four main types of false advertisements, adding that the list is open-ended. These are:
- Advertisements for non-existing products or services
- Claims about the product or service that do not conform to the actual situation and carry substantive influence on the buying decision (e.g. regarding price, product origin, ingredients, producer, function, performance)
- Using data, results of scientific research or surveys, quotes, or statistics that are falsified, fictitious or cannot be verified.
- Fabricating the results of using the product or service.
The key element, however, remains that the advertisement damages the interests of consumers by being misleading or false.
Running a false ad is subject to a number of sanctions. For one, the advertiser may be fined, have its business license revoked, be held to bear civil liability for damage to consumers and even criminally prosecuted, if the ad constitutes a crime. If the advertising agent or distributor knew or ought to have known of the advertisement being false, it shall suffer the same consequences.
Where an advertisement for products capable of affecting consumer health is misleading and as a result causes damage to a consumer, the advertiser, agent, distributor and spokesperson are jointly liable. For other false ads, the agent, distributor and spokesperson are only liable if they knew or ought to have known about the ad being false.
The new law will now also regulate the advertising spokesperson. This refers to a natural person or organization using its name or image to endorse a product. It is not allowed to have a spokesperson recommend medical treatment, medical devices, medicine or other health care products. This includes hospitals, research institutes, professional organizations, health care practitioners or patients. An advertiser may not use children under the age of ten as spokespersons. The spokesperson may not recommend products or services he or she has not used themselves.
Investigative Powers of the Administration for Industry and Commerce
The Administration for Industry and Commerce (AIC) is tasked with supervising the advertising industry. The proposed law grants the AIC far-reaching powers to:
- Inspect the premises of a company suspected of breaking the law
- Question the company’s legal representative and staff members mainly responsible for the suspect behavior, and investigate other personnel
- Demand the company suspected of misbehavior surrender documents before a certain date
- View and confiscate copies of contracts, receipts, advertisements, records and other documentation
- Seal or seize advertisements, tools and equipment
- Close down suspect operations
Interestingly, the proposed law removes the requirement for an advertiser to only advertise products included in its business license.
The new law is also updated to deal with modern technologies like the Internet and cellphones. For example, it specifically stipulates that pop-up ads on websites should not hinder regular internet use, and must allow users to close them with one click. It also forbids contacting people through email, phone calls or text messages with the intent of advertising products, without the person’s prior consent. A welcome change for those who have experienced China’s ubiquitous spam text messages, emails and cold calls.
In recognizing the role of consumer organizations, the law grants these institutions the right to supervise advertisements for infringement of consumer rights.
This is our third and final article in our series on advertising in China. Previously, we addressed the requirements for setting up an advertising company in China and discussed some key features of the present regulations on advertising.
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.
China Investment Roadmap: The Medical Device Industry
In this issue of China Briefing, we present a roadmap for investing in China’s medical device industry, from initial market research, to establishing a manufacturing or trading company in China, to obtaining the licenses needed to make or distribute your products. With our specialized knowledge and experience in the medical industry, Dezan Shira & Associates can help you to newly establish or grow your operations in China and beyond.
China Retail Industry Report 2014
In this special edition of China Briefing, we provide an overview of the retail industry in China and the procedures for setting up a retail shop, focusing specifically on brick-and-mortar physical retail stores. Further, we have invited our partner Direct HR to offer some insights on the talent landscape in the retail industry, as well as tips for recruiting retail personnel in China.
Annual Audit and Compliance in China
In this issue of China Briefing, we discuss annual compliance requirements for foreign-invested enterprises, including wholly-foreign owned enterprises, joint ventures and foreign-invested commercial enterprises, as well as the less demanding requirements for representative offices. We also highlight the most recent tax and legal changes that will significantly influence the way companies do business in China in 2014.