INTERNATIONAL BUSINESS LAW – REGULATION OF ADVERTISING
IN THE PEOPLE’S REPUBLIC OF CHINA
The People’s Republic of China is the world’s second largest economy. It has approximately 1.38 billion customers. It also has a growing middle class which has an insatiable desire for western goods and services.
It is therefore important for Australian businesses to understand restrictions on how they can advertise in China. New advertising laws came into effect in late 2015, the effect of which is to impose stricter controls on advertisers promoting their goods within the People’s Republic.
The new legislation is based on the Advertising Law of the People’s Republic of China. The Advertising Law was initially adopted in 1994. It was restated in late 2015. The restatement doubled the length of the legislation. The purpose of the restatement was to strengthen consumer protection and impose tougher rules upon advertisers.
The restated Advertising Law prohibits false or misleading content. What amounts to that? The Advertising Law gives examples which feature a commodity or service that does not exist or one that contains incorrect information in relation to function, origin, usage, quality, ingredients or price.
The Advertising Law also bans terms such as “the most” or “the best”. An example of the restated Advertising Law being applied occurred when the Beijing Ministry of Industry and Commerce prosecuted Xiaomi Inc which is a Chinese electrics company and a large global smart phone maker. Xiaomi advertised using phrases such as “the best” and “the most advanced” on its website relating to its smart phones. The prosecution carries with it a potential minimum fine of $50,000.00.
The Advertising Law also limits the use of pop-up adverts which must be able to be closed by one click only. Furthermore, any advertisements sent electronically by email must include the sender’s true identity, contact details and provide the recipient with an option to reject the continuing receipt of advertising.
Whereas comparative advertising in Australia is discouraged if not outlawed by Commonwealth or State/Territory consumer legislation, the Advertising Law of China does allow comparative advertising so long as there are no direct comparisons between advertisers. Any allowed comparative advertising must also avoid making comparisons with specifically named products or services.
The Advertising Law also prohibits the overt or covert use of the Chinese national flag or national anthem in advertising as well as disallowing the use or name or image of any public institute.
Likewise, the Advertising Law prohibits anything causing detriment to national dignity or interests or anything interfering with social stability or causing detriment to social and public interests. There is also a ban on advertisements which interfere with social public order or go against good social norms. Accordingly, Australian advertisers should consider carefully if their advertising risks run in contrary to these provisions. What is considered allowable political criticism in Australia may well breach these parts of the restated Advertising Law even if unintentionally.
Greater control over product endorsement by celebrities is now also a feature of the restated Advertising Law. Celebrity endorsers will be responsible for a product or service they endorse in an advertisement that contains false claims and breaches of the new Advertising Law if they were aware or should reasonably have been aware that the product or service contained false claims. Such a celebrity can in fact be banned from endorsing products or services for three years. The Advertising Law also holds endorsers of false advertisements which relate to life and health products guilty irrespective of whether they were aware or should have been aware of the false claims. Innocence is definitely not an excuse. Furthermore, the Advertising Law bans anyone endorsing a product that they have not personally used and a child celebrity under 10 cannot endorse any product. Furthermore, celebrity endorsers are banned from featuring in advertisements for medicine or medicinal devices or for foods claiming to have health and other benefits.
The Advertising Law also goes further relating to the protection of children. Advertisements which are conducted in kindergartens or in primary and middle schools are banned as well as either overt or covert advertisements in text books or on school uniforms or in school buses. Medical health professions would welcome such a ban in Australia relating to the advertisement of junk food!
The Advertising Law also prohibits distributing hard copy to a person’s house or transport (such as the flyer under the windscreen wiper) without the consent of the recipient.
In relation to tobacco advertising, this is now prohibited in the mass media or in a public place or outdoors. It is also prohibited to distribute any form of tobacco advertising to minors.
The Chinese Government also wants to encourage breast feeding by Chinese mothers. The Advertising Law now imposes restrictions on the advertisement of baby formula where it is prohibited to advertise a claim that such formula is a full or a partial substitute to breast milk.
The Advertising Law also introduces harsher laws relating to advertisements for medicine, health food, medicinal devices, alcohol, investment and financial products and the purchase and sale of real estate.
The Advertising Law also introduces harsh penalties.
If the advertisement is found to be misleading, then the Chinese Industry and Commerce Ministry can demand the following:
The advertisement immediately cease being published;
Demand the advertiser takes steps to mitigate the influence which the misleading advertisement has had;
Issue a fine ranging from 3-5 times of the advertising cost;
Where the advertising cost is hard to calculate, a fine of between RMB200,000.00 and RMB1 million (approximately) or AUD$40,000.00 to AUD$200,000.00 (approximately) may be issued;
The revocation of the business license of the advertiser in cases of the most serious breach.
The restated Advertising Law imposes a tough regulatory regime. The new entrants to the mainland Chinese markets – and even to existing Australian businesses operating there – falling foul of the restated law can have catastrophic effects. Appropriate advice should therefore be sought when considering advertising in this market.
This article is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. No reader should act on the basis of any matter contained in this article without first obtaining specific professional advice.
DISCLAIMER: We accept no responsibility for any action taken after reading this article. It is intended as a guide only and is not a substitute for the expert legal advice you can get from De Marco Lawyers and other relevant experts.