New Laws Increase Consumer Protection in China

China’s updated consumer protection laws come into effect on Saturday, World Consumer Rights Day.

SHANGHAI — China’s updated consumer protection laws come into effect on Saturday, World Consumer Rights Day.

It’s the first time consumer protection legislation has been updated in China in more than 20 years, and is widely seen as targeting the country’s booming e-commerce industry. The laws take effect just as China’s central bank moved to further protect online shoppers by halting payments via QR codes and virtual credit cards. Both Alibaba and Tencent had been preparing to roll out virtual credit cards next week.

Broadly speaking, the new regulations will increase penalties for defrauding consumers, ban the unauthorized disclosure of customers’ personal information, place the burden of proof on vendors in the event of a dispute (a reversal of the previous situation in which consumers needed to prove vendors were at fault), as well as clarifying the role of consumer associations and establishing a publicly available “name and shame” file for those found guilt of offenses against consumers.

Most buzzed about is the new provision that will give consumers the right to return goods bought online within seven days, as well as requiring real name registration for online sellers.

Another change will see e-commerce platforms bear responsibility for compensating consumers who have had their rights infringed upon.

These two amendments in particular could cause a logistical headache for smaller online operators, as well as impactmajor platforms that deal with many different sellers, such as Taobao.com.

Jeongwen Chiang, a professor of marketing at Shanghai-based business school CEIBS, said the government has been “two steps behind” in keeping up with the changing retail landscape in China.

“E-commerce has been explosive in China, but returning goods has become a headache for consumers, if they order something from the Internet it becomes a headache to return them. There have been millions of complaints that the government has become aware of,” he said.

“To file allegations against retailers has traditionally been quite costly, so unless the goods have caused someone harm, I think most consumers would just bite the bullet and absorb the cost themselves.”

According to Professor Junhai Liu, the director of Renmin University’s Business Law Center and vice chairman of the China Consumers’ Association, the updated law will have a wide-ranging impact on consumption in China.

“The new laws will not only help to increase consumer protection efforts, but will also significantly boost consumer confidence, help to stimulate investment demand, expand employment. It will be a new impetus to economic growth,” he said.

“In China, we say capital is the mother of wealth and labor is the father of wealth, but consumption really is the source of wealth.”

Angelito Tan, founding partner and managing director of Robert, Tan & Gao (RTG) Luxury Consulting, also thinks the impact of the updated laws will be felt on multiple levels.

“Consumers will be affected first and benefit the most. At the same time, sellers in general will be affected because it will create a new level of administration, finance and legal; this will be a headache they have to adjust to,” he said.

Also affected, according to Tan, will be celebrities who sign on as the face of products, as they can also potentially be held liable in cases where products are falsely advertised, or prove harmful to consumers.

“They will have to think of a way to properly vet their opportunities for endorsements. This will be a very interesting area. You see international celebs doing endorsements in China they would never do in their own country, and now the smart ones will take a second look,” Tan added.

The current laws, on the books since 1993, have no regulations specifically covering online shopping.
Internet sales have risen almost 50-fold since 2006 to hit 1.3 trillion yuan, or $213.75 billion at current exchange, in 2012, according to government statistics. Analysts predict e-commerce will account for a fifth of total retail sales in China within five years.

Big e-commerce players in China, including Alibaba’s Taobao and Tmall platforms, and JD.com have independently instituted many of their own regulations, including real name registration, independently of the law over recent years.

“We welcome steps to continuously improve consumer protection mechanisms as these will drive the sustained and healthy development of the online retail industry,” Alibaba told WWD.

JD.com, meanwhile, preempted the official implementation by instituting all the new regulations on Jan. 1.

Andrew Keith, president of Lane Crawford, has been overseeing an e-commerce expansion in China recently and he said its business will be little affected by the new measures.

“This may impact some businesses but not Lane Crawford.  Our returns policy online is the same as our stores, and moreover we make it easy for our customers to return their online purchases by arranging courier collection of all returns direct from them for no additional charge,” he said, adding that they too welcome the formalizing of good e-commerce practices into law.

“We can only see the benefits of improved service standards and guarantees of data privacy in online transactions. Eliminating the risks customers face online will encourage the overall development of e-commerce and the role we play,” Keith said.

Zengdong Yang is a teacher in Shanghai — nicknamed “Taobao Queen” by friends because of the amount of time and money she spends on China’s version of eBay. She believes the new regulations are a step in the right direction.

“For us as consumers, these changes will be good, because now if I buy something from a Taobao store and ask them if I can return it, they can say yes or no. After March 15, it will make consumers happier to buy things knowing they can return them,” she said.

But she is skeptical about the ability of regulators to enforce some of the new rules, particularly in regards to monitoring the sale of customer information to third parties.

“I think a law to ban this is good, but only if it’s really enforceable. I think this is too hard to control because if a company wants to buy my information and I find out my information has been bought, how do I find out who sold it?” Yang said. “I don’t think Taobao, JD.com, these big companies, are selling people’s information, but who knows what individuals within these companies, or sellers working with these companies are doing?”

International companies have speculated that real name registration for online sellers will help track those selling counterfeit goods online, though the China-watchers WWD spoke with don’t think it will have much of an impact on the illicit industry overall.

“I definitely don’t think it’s going to stop it from going on. I would venture that a lot of the counterfeiters are just going to roll the dice because they can’t catch everyone. Counterfeiters are by nature very clever so they will find ways around it,” Tan said.

For retailers of luxury products, Lane Crawford’s Keith believes any progress in the anti-counterfeiting fight in China is a good thing.

“Counterfeiting is a very big issue online and off-line and there are many measures underway both at the regulatory level and brand level. As affluence grows and the luxury market continues to develop across all channels making legitimate product more readily available, consumers will increasingly seek out the real thing,” he said.