The intent of the PR China Draft E-commerce law is to regulate massive and rapidly growing Chinese e-commerce markets while strengthening its reputation and efficiency. The draft law applies to e-commerce operators, trading platforms and other third party providers such as logistics and payment providers.
The Draft, which was a third draft, was presented to the National People’s Congress on 19/12/16 and was published for comment (upon login) 27/12/16- 27/01/17. An outline of the legislation is provided at the end of this page.
The principles of the legislation are:
It excludes financial products and services and content services.
E-commerce operators require business licenses.
Whether business or individual, ecommerce operators will have to obtain a business license to trade and pay taxes.
Wisely, the third party platforms are being used to help implement this, so any individual trading on the platforms must provide identification and details to the platform.
There are a few exceptions to the business license, but it’s a clear distinction (services with personal skills, family handicrafts etc).
Explicit prohibition of behaviour that damages the e-commerce credit system.
In the west we might find this to be a case of over-regulation, but the scale of Chinese e-commerce and the importance of reputation, not only of the particular trader but of Chinese e-commerce overall makes this an aspect of the draft law that may have the most significant impact on international buyers accessing the market. It covers things like using malicious ratings against competitors, using fake transactions to build credibility, deleting or selectively disclosing credibility records, exchanging positive evaluations and so on. Authenticity of information supplied by e-commerce operators is also addressed.
Clarification of the obligations and liabilities of third party e-commerce platforms.
Some of the major players were consulted in developing this law so we see explicit legalisation of platforms taking guarantees/deposits from e-commerce operators, a practice that is typically carried out by platforms holding funds ‘in trust’ until the consumer accepts the delivered product. The following four obligations are placed on platforms:
1. to review and supervise sellers;
2. to enforce open and transparent platform rules;
3. to record and retain information; and
4. to allow exit from platforms.
Delivery providers to indemnify users when packages are damaged, delayed, incomplete or lost.
Payment service providers to be liable for losses caused by unauthorised payments unless they can prove the losses are caused by the recipient. Additionally they will be liable for any losses due to violation of any statutory requirements for financial information security (see next point).
Improved personal information security for e-commerce providers and third party providers.
E-commerce providers, logistics, payment providers and other third party providers are all responsible for personal information security through internal control and technology management on pain of large fines and revocation of business licenses. There are also data localisation requirements and some information sharing with government requirements (Article 5 -Cross border e-commerce), which align with the intent and principles of the draft law but I’m sure will have drawn requests for clarification and specificity from multinational corporations.
Requirements for remedial action and notification after data leaks are also outlined.
Some other issues the legislation addresses:
Here is the outline of the Draft legislation as presented.
Chapter I General Provisions
Chapter II The Main Business of eCommerce
1 General Provisions
2 eCommerce third-party platforms
Chapter III eCommerce Transactions and Services
1 Electronic Contracts
2 Electronic Payments
3 Express Logistics and Delivery
Chapter IV eCommerce Transaction Security
1 eCcommerce Data Information
2 Market Order and Fair Competition
3 Protection of Consumers’ Rights and Interests
4 Dispute Resolution
Chapter V Cross – border eCommerce
Chapter VI Supervision and Management
Chapter VII Legal Liability
Chapter VIII Supplementary Provisions