China is finally about to amend its law for the protection of consumers, almost 20 years after it was first promulgated in October 1993. On 28 April 2013, the National People’s Congress Standing Committee published a draft amended law for comments by 31 May. It will be probably be promulgated later this year after two more rounds of standing committee discussion.
The draft strengthens protection of consumer rights and imposes more obligations on businesses. It also seeks to update the law by addressing issues that have arisen or become more prominent since it was first passed, such as protection of personal data, electronic marketing messages, warranties, product recalls and e-commerce. The authorities are also given more power to conduct selective inspections on business operators and their goods and services, and penalties have increased.
What the draft says
Protection of personal data. Like the Decision of the Standing Committee on Strengthening the Protection of Network Information (effective 28 December 2012), the draft requires business operators to obtain consumers’ consent before collecting or using their personal data, and to explicitly inform them of the purpose, means and scope of information collection and use. Business operators must also keep collected personal data confidential and not sell or illegally provide it to others. Breach of these requirements may lead to penalties including orders to rectify, fines and in the worst case, annulment of business licence.
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Although China still lacks a national data privacy protection law, the government has clearly started focusing on protection of data, at least for specific industries. Business operators in China need to get used to the tighter regulatory regime on data protection, and should expect further tightening in future.
Marketing messages. Business operators may not send consumers commercial electronic messages, including text messages, e-mails and even messages through other electronic platforms such as microblogs if consumers have not consented to or requested such messages, or if they have expressly refused them.
Extended warranty for return, repair or replacement of goods. This new provision extends China’s three-warranty regime – whereby business operators must repair, replace or accept return of goods as provided by state regulations – to goods and services not already covered by specific three-warranty regulations. Where a business operator provides substandard quality goods, and there is no remedy under state regulations or the contract, the consumer can return the goods within seven days of receiving them. After seven days, the consumer may return them promptly where the contract can be rescinded under the Contract Law; otherwise the consumer may have them replaced or repaired.
Business operators must also assume the transportation costs for large goods in case of a return.
Product recalls and other measures for defective products. In response to recent defective product cases and to demands for legislation to standardise product recalls, the draft spells out some specific measures that may satisfy the business operator’s legal obligation to “take measures to eliminate the risk” of products or services that have a defect potentially harmful to people or property: cease production; cease sales; issue warnings; and issue product recalls. If a recall is undertaken, the business operator must bear all necessary expenses consumers incur as a result.
E-commerce. Consumer rights and business operators’ obligations are expanded to expressly cover e-commerce – selling goods or services through methods like online shopping, TV shopping, teleshopping or mail order. A business operator in e-commerce – and those in securities, insurance or banking – must provide consumers with “accurate and necessary information” on: its business address; contacts; quantity, quality and price or fees of its goods or services; time period and method of performance; risk warnings; after-sales service, civil liability and the like.
If a business operator sells goods via e-commerce, consumers may return the goods within seven days of receiving them, except for goods that are unsuitable to be returned (such as fresh food). This seven-day period is essentially a “cooling-off period”, during which a consumer may cancel the purchase contract and return the purchased goods without cause. There is some debate about this proposed provision: would it give consumers too much power, and will the cooling-off period be abused?
Authorities’ power to inspect. The competent authorities – including the industry and commerce bureau, quality supervision and inspection bureau, and food and drug administration – must now conduct selective inspections of business operators’ products and services, and order the business operators to take measures such as stopping production, stopping sales, issuing warnings and carrying out product recalls if the inspection detects defects potentially harmful to people or property.
Increased penalties. The potential penalty for fraud is increased from twice the purchase price to three times the purchase price, or RMB500 (US$80), whichever is greater. The maximum penalty for non-compliance with listed requirements has been raised from five times to 10 times the illegal income.
A business operator that knowingly provides defective goods or services that cause death or serious harm to health is subject to criminal liability and the victim can claim up to triple damages.
Actions to consider
Businesses potentially affected by these revisions – such as businesses selling to consumers in China or providing online trading platforms for such businesses – should consider whether and how they might need to revise business practices, or contracts with consumers or business partners, in response.
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Business Law Digest is compiled with the assistance of Baker & McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker & McKenzie by e-mail at: Zhang Danian (Shanghai) danian.zhang@bakermckenzie.com
