China’s Market Regulator Drafts New Regulations for Online Advertising

Posted by Written by Qian Zhou and Sofia Brooke Reading Time: 5 minutes

Online advertising in China will be subject to tighter scrutiny as authorities work on updating existing regulatory provisions.

China’s market regulator, the State Administration of Market Regulation (SAMR), is revising its online advertising guidelines, the “Interim Measures for the Administration of Internet Advertising” (the Interim Measures), to improve the supervision of internet advertising.

The Interim Measures are no longer considered suitable today due to the constant changing nature and scope of internet advertising. A draft Measures for the Administration of Internet Advertising (the draft Measures) has been made available for public comment. Comments can be made through post, website, or email until the December 25, 2021.

The SAMR says that the new regulation is intended to regulate advertising online and promote its healthy development as well as protect the rights of consumers.

The fast growth of the internet has created concerns about the monopoly of big internet companies, infringement, and related issues. The Chinese government has started to regulate the digital market by increasing scrutiny and penalties. Internet platforms are assumed to bear higher responsibilities in internet advertising compliance.

Proposed changes to the regulation of online advertising in China

Adjusting the scope of application

The Internet has become the most influential mass media in everyday life. Due to the characteristics of information on the internet – large quantity, rapid change, and wide influence, identification is more important for internet advertising than traditional forms of advertising. However, in practice, it is not rare to see that relevant parties in internet activities fail to mark their advertising information as ‘advertisement’ or even deliberately mislead consumers by using the contents format of advertorial, appraisal, or recommendation.

The draft Measures clarify that commercial advertisement and cross-border e-commerce advertisement that directly or indirectly promote goods or services through live steaming will come under the scope of this regulation.

It also clarifies that “advertising” should be clearly marked in the promotion of goods and services through the internet activities, such as bidding ranking, news reports, experience sharing, consumption evaluation, and additional shopping links.

Clarifying rules for pop-up advertisements

Besides, the draft Measures stipulate rules regarding “one-click off” of pop-up advertisements and embedded advertisements. Among others, the draft Measures list out the form of pop-up advertisements (such as internet ads published in the form of start play, video interstitials, pop-ups, etc.)

It also lists out the prohibitive actions for advertisers, including:

  • No closing sign or can only be closed after countdown
  • The closing sign is false or cannot be clearly identified or positioned
  • Requiring twice or more clicks to close a single advertisement
  • Popping up other ads after closing one ad in the process of browsing the same page
  • Other behaviors affecting one-click closure

Moreover, it stipulates that online advertising cannot entice the user to click advertisement through deceivable and misleading methods.

For violating the prohibitive actions listed above, the advertiser bears the responsibility for administrative punishment. And for enticing users to click through deceivable and misleading methods, all relevant parties – including the advertisers, the advertising agencies, and the advertising publishers – shall bear joint liabilities.

Clarifying the definition of certain concept

The draft Measures make it clear that the definition of “online advertising publisher” is consistent with that of traditional advertising publisher. It deletes “checking advertising content” and “deciding on advertising release” as the qualification to be recognized as online advertising publisher. Rather, “publishing and displaying” is regarded as a condition for online advertising publisher recognition.

Also, the draft Measures have tried to define “internet information service provider” – stipulated in Article 3.

Removal of the provisions on programmatic buying

According to the Interim Measures, as for online advertisements that are published in the way of “programmatic buying”, the advertising demand-side platform operator shall clearly mark the source of such advertisements. Publishing in the way of programmatic buying means the online advertising be published in a well-targeted manner by utilizing the information integration, data analysis, and other services provided by the advertising demand-side platforms, media-side platforms, and advertising information exchange platform. The advertising demand-side platform operators here refers to online advertising publishers and advertising agencies.

The authority in charge believes that programmatic buying is a business model of online advertising. It actually doesn’t create any new market player other than the advertising agencies and thus has no substantial impact on the content of the advertisement itself. Also, it is believed that the online platform’s liability in programmatic buying is too light, which is not helpful in regulating online advertising. Accordingly, the provisions on programmatic buying have been removed in this draft Measures.

Listing out the prohibitive advertising content

Among the 31 articles in this draft Measures, a total of 17 prohibitive advertising contents have been identified. Some of the prohibitive provisions existed in the Interim Measures, while others are newly proposed.

  • Online advertising on prescription drugs and tobacco is prohibited, which is in line with the Interim Measures.
  • Advertisements for medical treatment, drugs, formula food for special medical purposes, medical devices, pesticides, veterinary drugs, and health food shall not be published without scrutiny, which is in line with the Interim Measures. But the draft Measures further stipulates that advertisements of medical treatment, drugs, formula food for special medical use, medical devices, or health food shall not be published through live steaming.
  • Online advertising for off-campus training for primary and secondary schools and kindergartens is prohibited, which is a new rule proposed by the draft Measures that has yet to see effect.
  • The draft Measures call for bans on adverts aimed at minors, which might be “detrimental to the physical and mental health of minors”. Online games, medical treatments, and cosmetics will be targeted.
  • The draft Measures also prohibit publishing advertisements without verified qualifications. For example, if an advertisement involves patented product or methods, the advertising agencies and publisher should verify the patent number accordingly.

Other noticeable changes

The proposal calls for platforms to create systems to register and review adverts and advertisers. Records of advertising activities will need to be kept and updated regularly. Statistical information should be provided in a timely manner too.

Platform operators must take measures to prevent illegal advertisements that promote criminal activities or might contain malicious code. Platforms must also set up mechanisms for complaints about advertisements.

Adverts cannot be inserted where users are searching for government service websites.

The bigger background and the potential impact

Chinese authorities tightened regulations on multiple industries in 2021. In particular, the technology sector has been affected.

Ever since November 2020 when China suspended the IPO of Ant Group, Alibaba’s financial arm, regulators started to tackle a long-simmering problem in tech sector, especially the so-called “platform economy”: anti-competitive practices.

Alibaba was later fined a record RMB 18 billion (US$2.77 billion) after a four-month anti-monopoly probe. Followingly, other internet conglomerates including Tencent, Baidu, ByteDance, and Didi Chuxing were also fined for violating the anti-monopoly law. Smaller internet firms, including foreign-invested enterprises (FIEs), were not immune – for example, in April, an English-language takeout platform Sherpas was fined US$178,000 by Shanghai market regulator for anti-competitive conduct.

A string of anti-competitive behaviors, such as forced exclusivity arrangements (also known as ‘pick one from two’), ‘cash-burning’ strategy to gain market shares, unapproved M&A activities, false advertising, and deceptive and unfair pricing, have been targeted.

As part of the campaign, China amended the Antitrust Law and launched a new antitrust bureau, which will be responsible for conducting antitrust investigations and oversight M&A activities and market competition.

In September 2021, China’s cyberspace regulator published draft rules for how companies can use algorithmic recommendations, following new rules pertaining to the use of data and unfair competition.

Moreover, the government has cracked down on off campus education to reduce the workload of students and promote educational equity besides tightening scrutiny over the unchecked growth of the medical beauty industry.

It’s not surprising that just after the draft rules were published, shares in Tencent fell 0.5 percent while Meituan’s fell one percent. Big tech giants, such as Tencent and Baidu, may see a short-term reduction in advertising sales because of the new proposed regulations.

Overall, the draft Measures carries forward the implementation of relevant rules regarding online advertising in the Advertisement Law and the E-commerce Law and signals the coming of a strong regulatory era for online advertising activities.

Advertisers (i.e., enterprises or individuals who want to promote their products or services through advertising) and relevant parties engaging in online advertising, should pay attention to the newly proposed prohibitive provisions and the additional compliance requirements and make necessary adjustments in advance to mitigate potential risks.

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