China's continuing promotion and facilitation of e-commerce

E-commerce in China is now one of the largest online markets in the world and innovative models of doing business are erupting across the sector and challenging existing giants like Alibaba and Taobao.com.

China's government has been proactive in encouraging and promoting e-commerce both within China's borders and through cross-border transactions. Confidence of consumers and traders in this new environment is a must and China has sought to establish appropriate supervision and management of its domestic and cross-border e-commerce systems. The government has also led by example, as illustrated by its digitalization of customs clearance, payments of fees and taxes, and using the latest technology (example of x-raying containers) to facilitate inspection and quarantine activities. China has also worked with other countries via the WTO and Free Trade Agreements to further promote e-commerce.

E-commerce must not only be encouraged, but also greater oversight and regulation are required to ensure a high level of trust in this new business environment. In recent years, China has adopted many measures to facilitate e-commerce.

The latest sign of this legal infrastructure improvement is the recent publication by the National People's Congress of a draft e-commerce law which is awaiting finalization.

According to the draft, the new law will contain provisions governing both domestic e-commerce and foreign e-commerce which spans across national borders.

Whether acting as a company or individual, e-commerce operators will be required to register and gain all the required authorizations (subject to some exceptions, e.g. sale of your own agricultural products or family handicrafts). When individual vendors operate on a third party platform, this party must provide the name, address, ID certificate, contact information, and other information to the e-commerce third party platform.

The draft law specifies the obligations of the e-commerce platform, including duty to review and supervise operators, keep and maintain required records, develop operational procedures that are transparent and fair, including rules for vendors to exist from the platform.

Chinese consumer law will apply, including new provisions that will permit consumers in designated circumstances to bring an action against the third party platform. For example, recognizing the increasing importance of consumer ratings, the law would prohibit

• Removing unfavorable ratings/evaluations

• Purchasing of favorable consumer ratings by any means, including false attribution of high ratings for one's own business or giving false ratings to assist another.

• Making false or malicious ratings or evaluations in order to damage a competitor.

• Engaging in false transactions, including fake or false reviews or evaluations

• Pressuring or harassing another to make or amend their ratings or evaluations

• Publishing false evaluation information.

E-commerce operators violating the law could be liable for fines up to RMB 500,000 yuan, and face possible revocation of their license to engage in business.

A sale is not a sale until it is paid for and a major concern of consumers operating online is security of payment. The draft law establishes requirements for secure online payments and the rights and obligations involved. For example, in some cases the service provider will be liable for losses caused when a payment service provider fails to comply with the required statutory provisions. The service provider will be liable for losses as a result of unauthorized payment.

E-commerce operators will be required to develop and implement appropriate internal control system and technology management measures to protect e-commerce data and especially the personal information of consumers. Consumer consent must be gained for the collection of personal information based on the user's consent. There must not be fraud or other means to illegally gain consumer information

To secure the safety of online payments and prevent financial risks, the draft e-commerce law sets forth the liabilities and obligations of online payment service providers, which is a major reform in online payment law in China.

Under the draft, if an online payment service provider violates any related statutory requirements for financial information security management, the service provider will be liable for the corresponding losses. In addition, for any losses caused by unauthorized payment, the online payment service provider will automatically be held liable, unless the online payment service provider can prove that such losses are caused by the recipient of the online payment service.

The draft law also contains provisions regulating package delivery and logistic service providers. During the performance of express and logistics service, if the e-commerce trading item is delayed, lost, damaged or incomplete, the package delivery or logistics service provider must indemnify the customers. The standard of on-time delivery is not regulated in the draft e-commerce law, but it is regulated in other national standards, i.e. three (3) calendar days within the same city, and seven (7) calendar days to a different city within the mainland of China.

Conclusion

The new law is expected to be officially promulgated next year. Given the rapid growth and development of this sector of China and the global economy, we can expect to see ongoing reform in this area as new players enter the market and new models of e-commerce emerge.

We will also see continued growth of other traditional forms of off-line cross border trade including B2B conventional trade via Free Trade Agreements as well as postal and courier modes of trade shipped by business and consumers (C2C).

Taken as a whole, these developments promise to be disruptive in the positive sense of leading to a more innovative and competitive e-commerce market in China and beyond.

Eugene Clark is a columnist with China.org.cn. For more information please visit:

http://www.china.org.cn/opinion/eugeneclark.htm

Opinion articles reflect the views of their authors only, not necessarily those of China.org.cn.