Rules and regulations of E-commerce in China

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China’s E-Commerce Legislative framework

 

Introduction

In the year 2012, there was a 10 percentage raise in the number of internet users in China, nearly 564 million. There was an increase in its E-Commerce market by 66.5 percentage and the transactions rose to RMB 1.3 trillion (US $190 billion). In the year 2012, nearly 242 million users in China bought products online which was a drastic 21 percent leap compared to 203 million in the year 2011. These figures are expected to reach 310 million by the end of 2013. These transactions and purchased led to 6.1 percent of total retail sales of consumer goods in the year 2012, which was only 5 percent in the United States. This tremendous growth in online E Commerce can be due to the support of e-commerce merchandise on mobile platforms and social networking sites like Weibo - alternative to twitter in China, which helps in promoting the sales of online products. Same way the improvement in payment methods and speedy delivery  with 24 hours service has definitely favoured the growth of E-commerce in China. Nevertheless, the legislative framework of E commerce in China is far from comprehensive and the rules are regulations are either vague or out of date.Sale of counterfeit, poor quality commodities and intellectual property infringements are very common in  online purchases. Following this deficient dispute resolution mechanism in China also make it very difficult to handle E-commerce disputes. China is working to to set up a centralized monitoring platform for E-commerce activities across China, which will help eradicate these issues and help in constructing an environment that will promote future growth in China. This system is expected to be ready and working by the end of 2013.

 

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Current policy and Legislative framework

The five year plan for E-commerce Development (2011-2015) and 12th in the series aims in regulating few loopholes and streamlining the process. It is also aimed in significantly increasing the national economy by 2015 with the contribution of the E Commerce industry. The plan also aims in doubling the E Commerce turnover, increasing the level of E Commerce, increasing online purchases and sales by corporate, and ultimately attracting a string of internationally influential E commerce  brands and enterprises. Most of the previous bans and legal restrictions which the Chinese government imposed on foreign investment in the online retail sector have been removed, as part of the commitment made by the country’s WTO to maintain an Open market. In 2004 with the introduction of the “Measures for administration of foreign investment in the commercial sector” foreign investors through a foreign invested commercial enterprise (FICE) could engage and invest in China’s online retail business.


“FICE - Foreign invested commercial enterprise can either be in the form of a wholly foreign owned enterprise or a joint enterprise. A minimum registration capital of RMB30,000 is required to be paid if the company is a Single-Shareholder company as prescribed in the China’s Company Law. However regular practice involves the registered capital to reflect in the needs of the business, hence this amount is far higher than the minimum requirement. “


In August 2010, the China ministry of Commerce (MOFCOM) had issued a circular regarding the issues concerning the Approval and administration of foreign investments in online sales and Automatic vending machines (Shangzizi [2010] No.272, “Online Sales Circular”). This circular clearly stated that online sales are extension of an enterprise’s sales activities. Hence, existing FICE - Foreign invested manufacturing enterprise has the right to directly undertake online sales in China without any necessity of approval from the MOFCOM. Added to this, the online sales circular also regulated the decision to approve new foreign invested enterprises (FIEs) which exclusively engage in online sales down from the central commerce department to the various provisional commerce departments. This ultimately has helped in speeding up the approval process and has also very effectively increased competition among regional administrations to acquire foreign investments. A Foreign invested enterprise FIE that has plans to provide network service to other trading parties with its own online platform has to apply initially to the ministry of industry and information technology (MIIT) for a license of Internet content provider (ICP). On the other hand, Enterprises that are directly involved in product sales through their own online platform has to report only to the telecommunication administration authorities for filing their records. This ultimately means that foreign investors can engage themselves in online sales without the necessity of an ICP license from the MIIT provided that third party vendors do not have access to their online portal. They will however need to apply for an ICP filing number as discussed below.


For an FICE - Foreign invested commercial enterprise to allow third party vendors to access its online platform it must hold an ICP license from the MIIT. In China telecommunication services are divided into two sectors, basic telecommunication services and value added telecommunication service (VATS), which provides online trading services to third party constitutes. An FIE must satisfy the following conditions in order to engage in VATS in China according to the Provisions on the Administration of Foreign Invested Telecommunications Enterprises (State Council order No. 534),

  • The FIE - Foreign invested enterprise  must be a joint venture with foreign investment capped at 50 percent.

  • The primary foreign investor  of the FIE should have a sound track record, good operational experience and also experience in operating value-added telecommunication services.

  • FIEs that provide value added telecommunication services nationwide or across provinces are required to have a minimum registered capital of RMB10 million. RMB1 million is sufficient for enterprises which are engaged in only province.

  • The FIE must meet any other relevant requirements as stipulated by the telecommunications regulations and any relevant laws and administrative regulations.


The business license should be placed on the webpage where operational activities take place, of the FIE which is involved in online sales. They also have to maintain sales records, good system for return and exchange of goods and very importantly protect the consumers privacy and transaction details. They are bound to abide by the Law of Protection of Consumer rights and interests and the Law of Product quality.


ICP filing under State Council order 292


The Telecommunications Regulations (State Council Order No. 291), which was put to action on September 25, 2000 regulated that MIIT would be the government department overseeing the telecommunications and related activities in China. On the same day, the Administrative Measures on Internet Informative Services released an other act  State Council Order No.292, “Order 292”. This act emphasised that it would be the first administrative regulation to address profit-generating activities conducted through the internet, and also sets a milestone for furthers rules and regulations that will govern E commerce in China.


Electronic Signature Law


The standing committee of the NPC released the Electronic Signature law in 2004 and was effective from April 1, 2005. It is also considered to be the first law which was put into act in the E commerce legislation in China. This law emphasis that an electronic document is as valid as a paper document, which cleared the biggest obstacle legally that was a hinderance for the development of E commerce in China. The law also regulates the application and acceptance of electronic signature which is legally valid.


Standards and regulations governing online transaction services


OTPS Standards

The China E Commerce Association (CECA), in 2005, a non profit national organization under the supervision of MIIT and the Ministry of Civil Affairs, released the OTPS standards (Online Transaction Platform Services standards). It is an industrial code of practice which clarifies the general comprehensive standards for E commerce in China and mainly the obligations of online transaction platform providers. The following key terms define the OTPS standards,

  • Online transactions: Transactions concluded through online communication, including business to business(B2B), business to consumer(B2C), and consumer to consumer(C2C) transactions.

  • Online transaction platform: An online system that provides the space, technology and transaction services for various type of online transactions.

  • Online transaction platform provider: A legal person that operates an online transaction platform and provides transaction services to transaction parties.

  • Online Transaction Services: Information distribution and conveyance, contract signing, storage and maintenance and other services necessary for transaction parties to conclude contracts for online transactions.

  • Online transaction auxiliary services: Services that improve the transaction environment and promote online transactions, including secure authentication, online payment and transaction insurance services.


MOFCOM Announcement 21

Following the OTPS standards, MOFCOM issued Announcement 21 and entered into force on December 1, 2009. It consists of the Specifications for E-Commerce Model and Standards of Online Transaction Services (“OTS standards”). They also provided more detailed guidance for B2B, B2C AND C2C transaction models. In addition to this the OTS standards require online transaction parties in an aim to use their real identities in transactions and provide authentication information for verification purposes, such as business licenses and tax registration certification. Their contact information and physical address of operation should also be disclosed. The OTS standards also aims that the online transaction platform providers should create an online complaint-filing channel and a dispute handling mechanism. Added to this payment platform providers, online transaction platform providers, and auxiliary service providers should actively be assisting in obtaining cooperation and evidence whenever  a dispute arises.


AIC order 49

The State Administration of Industry and Commerce (SAIC) proposed the Interim Measures for the Administration of Online Commodity Transactions and Relevant Services -AIC Order No.49, “Order 49”. It was released in 2010 which regulates all the online commodity transactions and relevant services provided by online service providers and online commodity vendors all over China. This order AIC 49 also requires online commodity vendors and service providers to display clearly the information pertaining to services or products including their names, categories, quantities, prices, quality, shipping fees, forms of payment and methods, and return or exchange methods. Order 49 emphasizes that the service providers and online commodity vendors are bound by the relevant provisions of the Law on Product Quality and Law on the Protection of Consumer Rights and Interests.


MOFCOM Announcement 18

Based on the above mentioned laws and regulations proposed by the Chinese government, on April 12th 2011, the Service Standards for Third-Party E-Commerce Trading Platforms - MOFCOM Announcement [2011] No. 18, “Announcement 18” was put into force as a supplementary guidance. It was put into place for the administration of online trading platform providers. As stated in the previous regulations Announcement 18 reiterates the necessity of online transaction platform providers. In addition to its current role, it aims in targeting larger E-commerce players that acts as both online transaction platform participants and providers. The Announcement 18 requires the participants and providers to maintain independence between the owners of the business and their online platform for sales or service. It also aims in disclosing any relevant information pertaining to the online platform in an attempt to maintain fairness.

Group Purchases

In order to regulate the burgeoning group purchasing business, the Administration of Business Activities with Respect to online Group Purchases - Gongshang Shizi [2012] No.39, “Circular 39” was put into force on March 12th, 2012. Based on Circular 30 the following rules and regulations imply to group purchasing website operators.

  • Establish a system for examining the business status of the vendors and the quality of goods or services,

  • Specify the respective rights, obligations and responsibilities of the operators and the vendors in contract form,

  • Protect trade secrets of the vendors of goods or services and personal information of the consumers,

  • Curb acts of unfair competition,

  • Protect the legal rights and interests of consumers,

  • Store transaction information and

  • Regulate promotional activities.


Rules and Regulation imposed this year on promoting E-commerce development

China’s National Development and Reform Commission (NDRC), Ministry of Finance (MOF and 11 other departments imposed the Circular on Further Promoting the rapid development of E-Commerce, on 15th April, 2013, which lays down the below mentioned measures to develop the E-Commerce industry,

  • Improve Inter departmental coordination mechanisms,

  • Popularize the application of electronic accounting files in the E-Commerce sector,

  • Improve Policies, management systems and standard concerning e-commerce transactions, logistics and distribution as well as online auctions,

  • Improve custom clearance services

  • Accelerate the application of web invoices,

  • Promote the construction of a credible e-commerce transaction environment,

  • Improve and establish the product quality and safety supervision mechanism,

  • Establish a mobile payment information security system and

  • Improve the express delivery system for E-Commerce.

 

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