By Steven Elsinga
Advertising is a key part of any business selling to the Chinese market, as in any other country. There are, however, a few China-specific points that foreign businesses should be aware of – whether they are ad agencies operating in China, or marketers advertising foreign products to Chinese consumers.
As discussed in our previous article, a company can only engage directly in advertising if this is included in its registered business scope. In China, a company’s business activities are strictly limited to those included in its business scope. Other activities are not allowed, and companies engaging in them will be unable to issue official invoices (or fapiao). Among other things, this means that their corporate customers will be unable to deduct the transaction for value-added tax purposes. The business scope can also have consequences for a company’s minimum required registered capital.
If an advertising agency wants to take on foreign clients, its business scope must specifically include “taking on foreign advertising clients.” Foreigners advertising in China must go through a locally-registered advertising agency, rather than contract the services of an overseas entity.
Ads Requiring Government Approval
There are a number of limitations on advertisements in China.
For example, advertisements for medicines, medical devices, tobacco (other than through mass media, which is forbidden), pesticides and veterinary medicine need government approval before publication.
Pesticide advertisements may not contain absolute assertions as to safety or toxicity; unscientific claims regarding effectiveness, any display of unsafe use or other content prohibited by law. Ads for food, alcohol and cosmetics must be checked by the Ministry of Health and may not contain medical terms that would lead people to confuse them with medicines. As in most countries, ads for tobacco are not allowed in mass media or public places. Those that are allowed should state that smoking is harmful to health.
Self-regulation Through Advertising Agencies
Apart from these specific products, no prior government approval is required to place advertisements. Instead, China’s advertising laws require advertising agencies to screen their clients’ ad proposals for compliance with the law. All advertising agencies are required to have full-time staff dedicated to reviewing ad proposals to this end. These staff are required to take special training courses and stay up-to-date on policy and regulatory changes.
RELATED: Changing the Business Scope of a Company in China
When a prospective advertiser approaches an agency, it must show its business license. It is therefore not required for a foreign business to have a legal entity in China – a Representative Offices (RO) would suffice. An RO needs to show its registration certificate if it wants to run ads. An advertiser may only place ads for products and services contained within its business scope.
Ads may not contain false information or use hyperbolic language. Words like ‘the best’, ‘the fastest’, ‘the most effective’ are not allowed. An advertiser using such words risks being fined. Nor may ads show a different price from the actual price of the product. When a company wants to launch an advertisement, it needs to submit proof of the claims contained in the ad to the advertising agency. This includes any use of data, survey results, quotes, statistics, etc. The ad must state the source of these claims, data or other results, otherwise the advertiser risks being fined.
If an ad claims a product meets certain quality standards, the advertiser must show the relevant inspection certificates issued by a Standards Control Department. Claims of having won awards or government recognition, or possessing patents, trademarks, production permits or other certificates, need to be backed up by the actual document or other evidence. The use of people’s names is only allowed with their previous written consent. An advertisement must be recognizable as such, and may not be disguised as news. News outlets that feature advertising must clearly delineate them from news pieces.
Advertising agencies need to examine these documents. If these do not meet the requirements or are incomplete, the agency may not publish the ad. It must keep records of these assessments for at least one year.
With mass media being a sensitive issue in China, sometimes ads may not be allowed for political reasons. The law forbids the use of China’s state symbols such as the flag, names of government organs, any content that is obscene, superstitious, incites violence, terrorism or discrimination, violates the law, threatens public order or harms the public interest.
These terms may be interpreted rather broadly. While the advertising industry is mainly self-regulatory, through the assessment departments required to be in place at advertising agencies, the local Administration of Industry and Commerce is tasked with regulating the advertising sector. If the AIC does not approve of an ad, it may require that the ad be taken down. If it finds that an advertiser or agency has broken the law, it may impose fines or even revoke the company’s business license.
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 email@example.com or visit www.dezshira.com.
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