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New Rules to Sustain E-commerce Growth

Number of visits: Date:2018-10-19

  Regulations set to combat counterfeit products and fake reviews, making sector fairer and safer

  Jan 1 will be the start of a big year for Eastern e-commerce, for on that date China will implement comprehensive e-commerce legislation that was passed in August by the country's top legislators. The Chinese government has recognized that greater regulation is necessary to sustain China's financial internet boom.

  As the industry continues to grow and take a dominant share of retail sales in the world's most populous country, further consumer and seller protection has been considered to make the sector fairer as well as safer. But just how will these new regulations work, and how far will they go to protect buyers and sellers?

  To understand the significant future legislative framework affecting Chinese e-commerce, one must first consider whom the laws apply to. Three main groups are in question: operators that have their own platform, such as JD.com; those that operate buyer pages or website plug-ins within self-standing platforms; and any other type of e-commerce transaction operator, such as WeChat. These operators may fall into more than one of these categories, but the main aim of the new legislation is to cover anything bought and sold solely through online transactions.

  Such businesses, large or small, will face an increasingly watchful regulator and may be expected to carry out more paperwork and tax registration. This will mean that users of online marketplaces such as Taobao will have to pay income tax on sales, making the playing field level for bricks-and-mortar shops with whom they compete. So-called dai gou, or grey market sellers, will also have to pay income tax on international brands and products sold in China.

  Larger businesses may also find themselves in a position where they have to prove intellectual property rights for their products during the e-commerce process. The internet, once a safe haven for those looking to push counterfeit products, will now have e-commerce platforms sharing responsibility for counterfeit activity and will have systems in place to deal with it. Failure to do so might result in fines that could potentially reach 2 million yuan ($289,000; 250,000 euros; £220,000). Marketplaces such as Pinduoduo and Taobao will have to hire more people to investigate claims of counterfeit goods from third parties or face punishment. This is good news for regular consumers.

  Individual sellers on such marketplaces will also be required to have a business license in order to operate legitimately. Marketplaces such as Taobao currently divide sellers into individuals and business accounts. Under the new legislation, individuals will have to register with the State Administration for Industry and Commerce in order to legally conduct transactions, with the bottom line again being a step in the right direction to reduce fraud and increase consumer safety.

  Consumers will also be protected under the new legislation from inaccurate reviews. This covers fake reviews provided by real customers as well as sellers. This has been an issue in the past, with claims that customer service departments had been offering money or other perks in exchange for positive reviews. Doing so can now lead to potential fines, and clear instructions are given on how complaints must be handled promptly and with a clear system in place to address grievances.

  E-commerce around the world has been an area of business that has been difficult to keep tabs on and regulate. For the first time in China, such legislation will put in place a level of control necessary for small third-party sellers to protect consumer rights. Part of this difficulty is due to the huge volume of sellers. It is estimated that last year, Taobao had more than 10 million sellers in unregulated waters, clearly a legislative logistical nightmare considering that the number of customer service workers hired to tackle the issue is at most in the thousands.

  It is clear that the new legislation will be a step in the right direction for avid fans of the booming Chinese e-commerce world. Jan 1 is still some time away, which should give online platforms enough time to prepare for the changes in regulation in the industry. It is expected that many brands and online platforms will be updating their policies in the next few months to reflect this. In the meantime, consumers in the new year will sleep soundly knowing that the e-commerce industry, once an unregulated wilderness, will have a clear bricks-and-mortar style path to safe transactions and improved rights.

TypeInfo: Industry trends

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