Opinion: Why China’s new ecommerce law will be bad for grey market sellers

Photo credit: 罗 宏志

The Chinese government recently passed a new comprehensive ecommerce law that will be implemented on January 1, 2019.

As ecommerce continues to occupy a greater share of total retail sales in China, the government has recognized that there needs to be more regulation to protect consumer rights and level the playing field.

The law specifically regulates the conduct of three groups: platform operators (Taobao, Pinduoduo, JD.com, etc.), in-platform operators (those that operate shops on platforms), and any other types of ecommerce businesses (including WeChat stores, standalone ecommerce sites, etc.). These businesses will face increased scrutiny and paperwork. For large platforms, there will be increased efforts to protect product authenticity and IP rights.

Mom-and-pop sellers on WeChat and Taobao may be forced to register and pay income taxes for the first time, putting them on a level playing field with local brick-and-mortar retail stores.

This includes gray-market daigou agents who buy international brands overseas and resell them in China, meaning they may have to raise prices or exit the market altogether. This may prove to be beneficial for cross-border ecommerce.

Here’s our take on the new law.

Implementing stricter IP protection

Ecommerce platforms will, in part, shoulder the responsibility for the sale of counterfeit items and set up systems to protect intellectual property. (Articles 41-45)

In the past, only sellers were responsible. Now, ecommerce platforms have to establish rules to protect IP rights and may be fined anywhere from 500,000 to 2 million RMB (~US$70,000 to US$300,000) for failing to respond to claims of counterfeit items.

This will put more pressure on marketplace platforms such as Taobao and Pinduoduo, who will have to employ more personnel to investigate claims of counterfeit goods and vet third-party sellers.

Monitoring reviews

Platforms have to do more to protect consumers from fake reviews. (Articles 17, 40, 59)

This includes fake reviews not only by third-party agencies but also by real customers. In some cases, customer service representatives from third-party sellers have offered 2 to 5 RMB to customers in exchange for positive reviews.

Platforms must set up straightforward, effective complaint and reporting procedures and handle complaints in a timely manner.

Leveling the playing field among competition

Ecommerce platforms will be prohibited from excluding or restricting competition and imposing unreasonable restrictions, conditions, or fees on merchants. (Articles 22, 35)

Applying for business licenses

Paying taxes

Takeaways