The Chinese authorities are increasing their oversight of the country’s large Internet platforms which gained dominant positions in what has become the second largest consumer market in the world after the European Union. Indeed, according to Emarketer, China will surpass the US this year for the first time—with $5.072 trillion (RMB35.043 trillion) in retail sales. The publication of the Draft Measures for the regulation of online trading (网络交易监督管理办法 – 征求意见稿) by China’s State Administration for Market Regulation have led many investors to drop their holdings of Ali Baba and other Chinese Internet stocks, resulting ina $260 billion drop in market value over two-days closely following the flash market rotation from Tech to Cyclicals that was observed in US markets on Monday (cf. our analysis below in the Chart of the Week section).
The Draft regulations of which an unofficial translation in English can be read below (cf. Appendix) are China’s version of a global regulatory effort to prevent and to sanction some abusive practices which stem from the Platforms market power and dominant positions (cf. our analysis of the investigation launched by the European Commission against Amazon). China’s Antimonopoly law came onto effect only in August 1st 2008 and its first Ecommerce law took effect only on January 1st 2019. The latest regulations put their focus on multihoming and other principles which are key for ensuring a fair competition in the digital age.
Article 31 of the Draft Regulations prohibits abuses of market dominance by online trading operators, stating that : “Operators of online trading platforms shall not abuse their dominant position to interfere with the independent operations of operators on the platform, and shall not impose unreasonable restrictions or impose unreasonable conditions on the commercial cooperation between operators on the platform and other platforms.”
But for the time being there are no signs that the Chinese authorities want to break their national Internet champions, they wants to control them better and to rein their market power. The new market regulations are only one instrument and far from the other “nuclear options” that Beijing holds in its legal arsenal. Investors have overreacted and sold positions in companies that offer a golden opportunity to get an exposure to the Chinese consumer boom. In China too, the times are changing but at their own pace.
Appendix: Unofficial Translation of the “Measures for the Supervision and Administration of Online Transactions” (Draft for comments)
Chapter One General Provisions
Article 1 In order to regulate online transaction activities, maintain the order of online transactions, protect the legitimate rights and interests of all parties to online transactions, and promote the sustainable and healthy development of the digital economy, these Measures are formulated in accordance with relevant laws and administrative regulations.
Article 2 Within the territory of the People’s Republic of China, these Measures shall apply to the business activities of selling commodities or providing services through the Internet and other information networks and the supervision and management of market supervision and management departments. These Measures are applicable to business activities that sell goods or provide services in information network activities such as online social networking and webcasting.
Article 3 When engaging in business activities, network transaction operators shall follow the principles of voluntariness, equality, fairness, and integrity, abide by laws, regulations and these Measures, comply with business ethics and public order and good customs, participate in market competition fairly, earnestly perform legal obligations, and actively assume main responsibility , Accept supervision from all walks of life.
Article 4 Online transaction supervision and management adhere to the principles of encouraging innovation, tolerance and prudence, strict adherence to the bottom line, and integrated online and offline supervision.
Regarding the new business forms and models of online transactions, inclusive and prudent supervision is implemented to keep enough room for development, while ensuring the quality of goods and services and transaction security.
Article 5 Guide online transaction operators, online transaction industry organizations, consumer rights protection organizations, and consumers to participate in the governance of the online transaction market, and continuously improve the governance system of the online transaction market with multiple participation, effective coordination, and orderly regulation. Encourage online trading industry organizations to carry out industry self-discipline in accordance with the articles of association, establish and improve industry standards, and guide operators in their industry to operate in good faith and abide by the law and participate in market competition fairly.
Chapter II Online Transaction Operators
Section 1 General Provisions
Article 6 The term “online trading operators” as used in these Measures refers to natural persons, legal persons and unincorporated organizations that organize and carry out online trading activities, including operators of online trading platforms, operators on the platforms, operators of self-built websites, and social networking through the Internet. , Webcast, and other online services that carry out online trading activities.
The online trading platform operators mentioned in these Measures refer to legal persons or unincorporated persons who provide online business premises, transaction matching, information release and other services for both parties or parties in online trading activities for both parties or parties to independently carry out online trading activities. organization. The term “operator on the platform” as mentioned in these Measures refers to the online transaction operator who conducts online trading activities through the online trading platform.
Where other network service providers such as social networking and webcasting provide operators with business space, and provide support services related to transaction completion such as product browsing, order generation, online payment, etc., in the qualification review of operators, product and service information monitoring , Maintaining consumer rights, protecting intellectual property rights, providing information and data, and cooperating with supervision and law enforcement, etc. shall perform the responsibilities of network trading platform operators in accordance with the law. Online trading operators who carry out online trading activities through other online services such as online social networking, webcasting, etc., shall refer to the relevant provisions of these Measures regarding operators on the platform.
Article 7 Network transaction operators shall not engage in unlicensed and unlicensed operations in violation of laws, regulations, and the provisions of the State Council’s decisions. Internet transaction operators who are exempt from registration of market entities as stipulated in Article 10 of the “E-Commerce Law” shall register as market entities in accordance with the law.
The term “sporadic small transactions” as mentioned in Article 10 of the “E-Commerce Law” means that network transaction operators do not exceed 52 annual transactions and the annual transaction volume does not exceed the annual number of employees employed by urban private units in the province, autonomous region, or municipality where average salary. Where the same operator opens multiple online stores on the same platform or on different platforms, the annual number of transactions and annual transaction volume of each online store shall be combined.
The “convenience labor activities” mentioned in Article 10 of the “E-Commerce Law” refers to the commercial labor activities that serve the lives of local and surrounding residents, mainly including cleaning, cooking, washing, sewing, haircutting, moving, key preparation, pipeline dredging, Home appliances and furniture repairs, etc.
Article 8: Online transaction operators who apply for registration as individual industrial and commercial households are allowed to register their online business premises as their business premises. For those engaged in business activities on two or more online trading platforms, all online business premises engaged in business activities shall be registered with the registration authority. It is allowed to register the place of habitual residence as the residence, and the market supervision and management department of the county, autonomous county, city without districts, and municipal district where the individual’s residence is located shall be its registration authority.
Article 9: If an online transaction operator registers an online business site as a business site, the online transaction platform or the provider of the network service it is stationed in shall issue a certificate of the address of the online business site for him. The address certificate shall be complete, accurate and independent Identify and check in real time.
Article 10 An online transaction operator shall continuously publicize the main information of the operator or the link identification of the information on the main page of its website or the main page of its business activities. Encourage online trading operators to link to the electronic business license lighting system of the State Administration for Market Regulation and publicize their business license information.
Online transaction operators that have registered as market entities shall publish the following information as well as administrative licensing information, actual addresses, and contact information related to their business operations:
(1) The enterprise shall publicize the unified social credit code (registration number), name, type of enterprise, legal representative (person in charge), residence, and registered capital (capital contribution) information published in its business license;
(2) Individual industrial and commercial households shall publicize the unified social credit code (registration number), name, name of the operator, business location, and form of information published in their business license;
(3) Farmer professional cooperatives shall publicize the unified social credit code (registration number), name, legal representative, domicile, and total capital contribution information of the members published in their business license.
According to Article 10 of the “E-Commerce Law”, operators who have not registered as market entities shall publish the following self-declarations and actual addresses and contact information according to their actual business activities:
(1) “Individual sales of self-produced agricultural and sideline products shall be exempt from the registration of market entities in accordance with the law”;
(2) “Individual sales of household handicraft products shall be exempted from the registration of market entities in accordance with the law”;
(3) “Individuals who use their own skills to engage in convenient labor services that do not require a license in accordance with the law are exempt from the registration of market entities in accordance with the law”;
(4) “Individuals engaged in sporadic small-value trading activities shall be exempted from the registration of market entities in accordance with the law.”
If the information publicized by the online transaction operator changes, the updated publicity shall be completed within 6 working days.
Article 11: When collecting and using users’ personal information, network transaction operators shall obtain the authorization and consent of the collector, and shall clearly state the purpose, necessity, scope, and method of collection and use based on the principles of lawfulness, fairness, and necessity, and shall not use it once Summarize the authorization method, or use the default authorization, bundle with other authorizations, stop installation and use, etc., to force or disguisely force the person to be collected to agree to the collection and use of information that is not directly related to business activities. When collecting and using sensitive information such as biometric information, health information, property information, social information, etc., the authorization and consent of the person collected shall be obtained one by one.
Online transaction operators and their staff shall keep the collected personal information strictly confidential, and shall not provide it to any third party, including related parties, without the authorization and consent of the collector.
Article 12 Network transaction operators shall not deceive or mislead consumers in the following ways:
(1) Fictitious transactions;
(2) Fabricating evaluations, or instigating, inducing, or coercing others to make false or misleading evaluations;
(3) Misleading display of evaluations through improper handling methods such as deleting, concealing, or modifying evaluations, or pre-reporting good reviews, post-reporting bad reviews, or confusing evaluations of different goods or services;
(4) Using false or misleading pricing forms or price methods to deceive or induce consumers to conduct transactions with them;
(5) Using false advertising, promotion methods, samples, product or service descriptions, product or service standards, etc.;
(6) Forging or fraudulent use of market entity registration information and administrative license information;
(7) Confusing the source of goods or services;
(8) False marketing activities such as fictitious spot, false booking, false panic buying, etc.;
(9) Other acts that deceive and mislead consumers.
Article 13 If the consumer evaluation contains information that is prohibited by laws or administrative regulations from being published or transmitted, network transaction operators may perform technical processing in accordance with the law.
Article 14 Without the explicit consent of consumers, network transaction operators may not send advertisements and other commercial information to them. With the explicit consent of the consumer, an obvious, free and simple way to refuse acceptance shall be provided to the consumer. If the consumer refuses, the network transaction operator shall immediately stop sending, and may not send again after changing the name.
Article 15: Where online transaction operators directly bundle or provide multiple options for tying goods or services to consumers, they shall remind consumers to pay attention in a conspicuous manner. Where multiple options are provided, any option for tying goods or services shall not be set as the default consent of consumers, and the options selected by consumers in previous transactions shall not be set as the default choices of consumers in subsequent independent transactions.
Article 16 If network transaction operators provide services in ways that involve consumers’ non-active contracting, such as automatic renewal and automatic renewal, they shall remind consumers to pay attention in a prominent way. Where consumers choose the relevant method independently, the online transaction operator shall provide consumers with a significant, free and simple option to cancel or change the relevant method at any time during the entire service period, and pay a significant amount 5 days before the renewal or renewal date. Ways to remind consumers to pay attention.
Article 17: Online transaction operators shall provide information on the relevant conditions of goods or services in accordance with the Consumer Rights Protection Law, the Product Quality Law and other relevant laws and regulations, and fully protect consumers’ right to know and choose.
Article 18: Online transaction operators shall not use standard clauses to exclude or restrict consumers’ right to choose to file complaints with relevant administrative departments, or request mediation, arbitration, litigation and other consumer dispute resolution methods from consumer protection organizations.
Article 19: Online trading operators shall, in accordance with the requirements of the State Administration of Market Supervision and the provincial market supervision and administration department authorized by the State Administration of Market Supervision and Administration, report the price, sales volume, and sales of goods or services in a specific period, category, and region. And other data information.
Article 20: If an online trading operator terminates online trading activities on its own, it shall continue to publicize relevant information such as the announcement of termination of online trading activities at least 30 days in advance on the homepage of its website or on the main page of the main page engaged in business activities, and take reasonable measures to ensure The legitimate rights and interests of consumers and related operators.
Article 21. Online trading operators who organize and carry out online trading activities through other online services such as online social networking, online live broadcasts, etc., shall display information about the actual business entity of the goods or services, after-sales service and other information in a conspicuous manner, or perform link jumps prompt. The webcast service provider shall provide a lookback function for the online trading activities carried out by the webcast.
Section 2 Online Trading Platform Operators
Article 22: Operators of online trading platforms shall require operators who apply to enter the platform to sell goods or provide services to submit real information such as their identity, address, contact information, administrative license, etc., conduct verification and registration, establish registration files, and conduct registration The files are verified and updated at least every 6 months.
Article 23: An online trading platform operator shall submit the identity information of the operator on the platform to the provincial market supervision and administration department at the place of residence from January 1 to January 15 and July 1 to July 15 each year. . The identity information of the operators on the platform includes:
(1) Information such as the name (name), unified social credit code (registration number), contact information, name of the online store, and website link of the operator on the platform that has been registered as a market entity;
(2) The name, ID number, actual business address, contact information, online store name and website link of the operator on the platform that has not registered for market entity registration, and self-declaration of specific circumstances that do not require market entity registration according to law.
Encourage network trading platform operators and market supervision and management departments to establish automated information reporting mechanisms in the form of open data interfaces.
Article 24: Operators of online trading platforms shall provide technical support for operators on the platform to perform their information disclosure obligations in accordance with the law. If the information publicized by the operator on the platform changes, the change shall be reported to the platform within 3 working days, and the platform shall conduct verification within 3 working days and complete the updated publicity.
Article 25: Operators of online trading platforms shall distinguish between those who have completed the registration of market entities and those who have not completed the registration of market entities in a conspicuous manner to ensure that consumers can clearly identify, intuitively understand, and make independent choices.
Article 26: When an online trading platform operator changes the platform service agreement and transaction rules, it shall completely preserve all historical versions of the platform service agreement and transaction rules to ensure that operators and consumers can read and download them conveniently and completely.
Article 27: An online trading platform operator shall establish an inspection and monitoring system for the operators who enter the platform to sell goods or provide services and the information on the goods or services they publish, and find that the operators on the platform and the goods or services they sell or provide In case of violation of market supervision and management laws, regulations, rules and the circumstances prescribed in these Measures, necessary measures shall be taken in accordance with the law and relevant records shall be kept.
If the operator of the online trading platform discovers that the operator on the platform violates Article 12 and Article 13 of the E-Commerce Law, and other laws, regulations and rules require reporting to the market supervision and management department, the online transaction The platform operator shall report to the market supervision and management department at or above the county level where the platform is located.
Article 28: If an online trading platform operator adopts warnings, suspending services, or terminating services on the platform operators in accordance with the provisions of laws, regulations, rules, or service agreements and transaction rules, they shall make their own decision to deal with it. The measures shall be announced within 24 hours from the date of the measures, including information such as the name of the online store of the operator on the platform, illegal activities, and handling measures. Short-term handling measures such as warnings, suspension of services, etc. shall continue to be publicized until the expiry date of the implementation of the handling measures.
Article 29: The operator of an online trading platform keeps the identity information of the operator in the platform for a long time, and the storage time of the transaction information of goods or services, consumer payment, logistics express, return and exchange, and after-sales shall not be less than 3 times from the date of completion of the transaction. year. Where laws and administrative regulations provide otherwise, those provisions shall prevail.
Article 30: The operator of an online trading platform shall receive a notice issued by the intellectual property right holder in accordance with Article 42 of the Electronic Commerce Law or a statement submitted by an operator on the platform in accordance with Article 43 of the Electronic Commerce Law Within 24 hours, continue to publicize basic information about the processing process in a prominent position on the main page of the operator’s business activities on the platform; within 24 hours after receiving the notice that the intellectual property right holder has complained or sued, the operator on the platform The main page of business activities continues to publicize the basic information of complaints or prosecutions in a prominent position.
After the operator of the online trading platform forwards the statement of the operator on the platform to the intellectual property right holder, if he does not receive a notice that the intellectual property right holder has complained or filed a lawsuit within 15 days, the handling measures taken shall be terminated and withdrawn within 24 hours The public information specified in the preceding paragraph.
Article 31: Operators of online trading platforms shall not abuse their dominant position to interfere with the independent operations of operators on the platform, and shall not impose unreasonable restrictions or impose unreasonable conditions on the commercial cooperation between operators on the platform and other platforms.
Operators on the platform can independently choose to carry out business activities on multiple platforms. Regarding matters related to the establishment or modification of exclusive business partnerships between the platform and the operators on the platform, fair negotiation shall be conducted on an equal basis, and the cooperation conditions, obligations of both parties, and liabilities for breach of contract shall be clearly agreed in writing. The platform shall not pass unreasonable Means such as searching for rights down, removing products, restricting operations, blocking stores, and increasing service charges, etc. force the operators on the platform to accept them. Where the platform proposes to establish or change matters related to the exclusive business cooperation relationship, causing losses to the operators on the platform, the operators on the platform shall be reasonably compensated.
Article 32: If an online trading platform operator intends to terminate the provision of platform services, it shall publicize it in a prominent position on the main page of its website at least 3 months in advance, notify consumers and relevant operators, and take necessary measures to protect consumers and related operators. The legitimate rights and interests of operators.
Article 33: Online trading platform operators shall cooperate with market supervision and management departments in accordance with the law, and provide information on the identity of the operators, commodities, or products or products on the platform related to supervision and inspection, case investigation, accident handling, consumer dispute handling and other regulatory and law enforcement activities as required. Service, consumer payment, logistics and express delivery, return and exchange and after-sales transaction information and other data information.
Operators that provide online transaction operators with publicity and promotion, payment and settlement, logistics and express delivery, network access, server hosting, virtual hosting, cloud services, website design and production, etc., shall promptly assist the market supervision and management department in investigating illegal online transactions in accordance with the law Behavior, provide relevant data and information in its possession as required.
Where the market supervision and management department discovers that online trading operators have violated market supervision and management laws, regulations and rules, and requires online trading platform operators and other service providers to take measures to stop them in accordance with the law, the online trading platform operators and other service providers shall Cooperate.
Chapter III Supervision and Administration
Article 34 The State Administration of Market Supervision is responsible for organizing and guiding the supervision and management of online transactions across the country, and the market supervision and management departments at or above the county level are responsible for the supervision and management of online transactions within their administrative regions.
Article 35 The illegal activities of the operators of online trading platforms and self-built websites shall be under the jurisdiction of the market supervision and management department of their domicile.
The illegal activities of the operators on the platform are under the jurisdiction of the market supervision and management department where they actually operate, and the online trading platform operators may also exercise jurisdiction if they first discover or receive clues to the law in their domicile. Regarding consumer complaints from the operators on the platform, both the actual business location of the operators on the platform and the market supervision and management department where the operators of the online trading platform are located have the right to handle.
Article 36 The market supervision and management department of the place of residence of the operator of the online trading platform and the actual operation place of the operator on the platform shall strengthen coordination and cooperation in daily management and law enforcement activities. The provincial market supervision and administration department in the place where the operator of the online trading platform is domiciled shall, according to work needs, timely share the identity information of the operator in the platform with the provincial market supervision and administration department in the actual place of operation.
Article 37: The market supervision and management department shall take necessary measures to protect the security of the data and information provided by network transaction operators, keep the personal information, privacy, and business secrets strictly confidential, and shall not disclose, sell or illegally provide to others.
Article 38 The market supervision and administration department shall implement credit supervision on network transaction operators, and include the operators’ market entity registration, administrative license, filing, qualification certification, spot check and inspection results, and include them in the list of abnormal business operations and the list of untrustworthy enterprises with serious violations. , Administrative punishment and other information are recorded in credit records. In addition to the unified collection and disclosure of the company-related information in the above-mentioned information through the national enterprise credit information publicity system, it can also be through the official website of the market supervision and management department, online search engine, and the prominent position of the main page of the operator engaged in business activities, etc. Publicize the above information.
Article 39 When investigating suspected illegal online transactions, the market supervision and management department may exercise the following powers in accordance with the law:
(1) Conduct on-site inspections of places related to suspected illegal online transactions;
(2) Consult and copy contracts, bills, account books and other relevant materials related to suspected illegal online transactions;
(3) Collect and retrieve electronic data related to suspected illegal online transactions;
(4) Inquiring parties suspected of engaging in illegal online transactions;
(5) Investigate and understand relevant information from natural persons, legal persons and unincorporated organizations related to suspected illegal online transactions;
(6) Other measures that can be taken as required by laws and regulations.
If the measures specified in the preceding paragraph need to be reported for approval according to law, the approval procedures shall be completed according to law.
The technical monitoring records of online commodity transactions and related service activities by the market supervision and management department can be used as electronic data evidence for administrative penalties or administrative measures taken against illegal online commodity operators and related service operators.
Chapter IV Legal Liability
Article 40 Network transaction operators who violate the provisions of Articles 10, 20, and 24 of these Measures shall be punished in accordance with the provisions of Article 76, paragraph 1, of the “E-Commerce Law”.
Article 41: If an online trading platform operator fails to take necessary measures against the operator on the platform that violates the provisions of Articles 10 and 20 of these Measures, or violates the provisions of Article 24 of these Measures, it shall be governed by the E-Commerce Law “Punishment stipulated in the second paragraph of Article 76.
Article 42: Network transaction operators who violate Article 11 of these Measures shall be punished in accordance with Article 56 of the Consumer Rights Protection Law.
Article 43: Network transaction operators who violate Article 12 of these Measures shall be punished in accordance with Article 20 of the Anti-Unfair Competition Law.
Article 44: Network transaction operators who violate Article 15 of these Measures shall be punished in accordance with Article 77 of the E-Commerce Law.
Article 45: Network transaction operators who violate the provisions of Article 18 of these Measures shall be punished in accordance with the “Measures for Supervision and Treatment of Contract Illegal Acts” and “Measures for Punishment of Acts in Violation of Consumer Rights and Interests”.
Article 46: If an online trading platform operator violates the provisions of Article 22, Article 23, Article 27, and Article 29 of these Measures, it shall comply with Article 80 of the E-Commerce Law Provide penalties.
Among them, network trading platform operators who have one of the following circumstances shall be punished in accordance with Article 83 of the “E-Commerce Law”:
(1) Knowing or ought to know that the goods sold or the services provided by the operators on the platform do not meet the requirements for protecting personal and property safety, or have other acts that infringe on the legitimate rights and interests of consumers, and fail to take necessary measures;
(2) Failing to verify the qualifications of the operators on the platforms that sell or provide goods or services related to the lives and health of consumers, or fail to fulfill the obligations of safety guarantees to consumers.
Article 47: Network transaction operators who violate the provisions of Article 13, Article 14, Article 16, Article 19, Article 21 of these Measures shall be ordered to make corrections within a time limit and impose a penalty of less than 10,000 yuan If the circumstances are serious, a fine of 10,000 yuan to 30,000 yuan shall be imposed.
Article 48: Internet trading platform operators violate Article 9, Article 25, Article 26, Article 28, Article 30, Article 31, and 32 of these Measures Article 33, as stipulated in Article 33, shall be ordered to make corrections within a time limit and a fine of not less than 10,000 yuan but not more than 30,000 yuan shall be imposed.
Other service providers who violate Article 33 of these Measures shall be punished in accordance with the provisions of the preceding paragraph.
Chapter V Supplementary Provisions
Article 49 The State Administration for Market Regulation is responsible for the interpretation of these Measures.
Article 50 These Measures shall come into force on year, month and day. The “Measures for the Administration of Online Transactions” issued by the former State Administration for Industry and Commerce on January 26, 2014 shall be repealed simultaneously.