In 2018, Singles’ Day statistics in China revealed a new record of total revenue of 213.5 billion RMB, compared to 5.2 million RMB just ten years ago. This staggering figure epitomizes the surge of the e-commerce market in China.
In less than a decade, China has become the largest and most dominant e-commerce market in the world, accounting for over 40% of global e-commerce activity. What does it look like to own over 40% of the world’s digital marketplace? “The current value of China’s e-commerce transactions is estimated to be larger than in France, Germany, Japan, the United Kingdom, and the United States combined,” according to a recent report by McKinsey.
A variety of business models have achieved great success in this market; not only traditional B2B, B2C, and B2B2C, but also social commerce, cross-border trade, group purchase, and O2O.
That sort of growth often commands the attention of governing bodies, and China is no exception, as 2019 ushers in China’s first e-commerce law.
China’s e-commerce law: A sign of the (growing) times
China’s legislation is struggling to keep up with the rapid market growth, especially with reference to consumer protection and supervision. As a result, problems like a lack of protection of user rights, quality and safety issues, transparency of user data, intellectual property protection, unfair competition, and unregulated cross-border trade are consistent threats to the market and consumers’ interest.
After several years of preparation, China’s first e-commerce law officially took effect on January 1st, 2019. The law aims to protect the legal rights and interests of all parties involved in e-commerce transactions while maintaining market order.
“The law specifies regulations concerning operators, contracts, disputes settlement, and liabilities involved in e-commerce as well as the market development,” said Yin Zhongqing, a lawmaker, at a press conference held by the General Office of the NPC Standing Committee in 2018.
The law addresses not only consumer protections like data privacy and cybersecurity, but it also hopes to repair China’s reputation as a source of knock-off and counterfeit merchandise by zeroing in on false advertising.
From macro to micro: Definition of e-commerce operators expands
Under China’s new e-commerce law, the definition of e-commerce operators expands to smaller players like micro-stores, as well as third-party retailers who do business through online channels like WeChat.
China has defined three types of e-commerce operators in the legislation:
Platform operators: These are traditional e-commerce operators, for example Taobao run by Alibaba.
Operators on platform: These are vendors that operate online shopping and stores on traditional e-commerce platforms
Other e-commerce operators: These are e-commerce operators selling goods or providing services through self-established websites or channels other than the platforms, for example, the merchants on WeChat.
Some highlights of the law include:
1.) Reinforced protection of customer rights and privacy.
2.) Platform operators will be jointly and separately liable if they fail to take the necessary measures where they know, or should know, that the contents of the platform do not comply with security requirements, or otherwise violate the rights and interests of the consumers.
3.) Intellectual property protection: A penalty will be applied to platform operators if they fail to take actions against infringements.
4.) Regulate the competition in the market: Operators, especially the dominant ones, are prohibited from excluding or restricting competition by using their advantages. Also, imposing unreasonable restrictions, conditions or fees on merchants are prohibited.
All in all, this legislation legitimizes the e-commerce market as one of the most significant and impactful pillars of China’s economic growth. Compliance has the priority on top of the business.
The law further regulates and promotes the cross-border e-commerce market, and supports the participation of small and micro businesses. The individual business traders who are not compliant will be excluded from the market. This will be a beneficial policy to cross-border e-commerce business, as well as multi-national business as a whole.