New registration requirements prompt fears from e-businesses

The first E-commerce Law in China came into force on 1 January 2019. Since its promulgation on 31 August 2018, many people have voiced concerns, in particular over the requirement for online businesses to register with the Administration for Industry and Commerce (AIC). Previously, registration was not required for e-commerce businesses run by individuals – they merely had to provide personal information to e-commerce platforms. However, this lacked accountability as the e-commerce platforms had control rather than the government.

Opinions on Accomplishing the Registration Work of E-commerce Business Operators

On 3 December 2018 the State Administration for Market Regulation (SAMR) issued the Opinions on Accomplishing the Registration Work of E-commerce Business Operators.

The noteworthy points in the opinions are summarised as follows:

• the following businesses are exempted from registration requirements:
  • individuals selling agricultural by-products;
  • individuals selling homemade products;
  • individuals using their own skills to engage in public convenience services;
  • individuals engaging in low-value transactions;
  • other businesses that are not required by law to register;
• for the purpose of business registration, the e-commerce platform or online business may be recorded as the place of business;
• if the operators work across multiple e-commerce platforms/online business places, all platforms and places must be registered;
• operators must register their residential address;
• e-commerce platforms will work with SAMR and provide all necessary information to ensure compliance of the business registration requirements; and
• operators will publicise their business licence information in a prominent position.

Clarification on how registration will be carried out is lacking, particularly with regard to the e-commerce platform’s role in ensuring that existing operators comply. The exact measures that e-commerce platforms will implement will require further clarification. For the time being, e-commerce platforms are responsible for ensuring the compliance of operators. They may be fined if they fail to take necessary measures against operators who violate such requirements or if operators fail to prominently display the requisite business registration information. Fines can range from Rmb20,000 to Rmb100,000 (roughly $3,000 to $15,000), and be increased to Rmb100,000 to Rmb500,000 (roughly $15,000 to $74,000) for serious cases.

Significance of e-commerce business registration

The registration requirement is a welcome development for brand owners. Operators will now be more easily identifiable. Further, operators with multiple online business places will be made visible, and brand owners may prioritise enforcement targets accordingly. In addition, as operators must register their home addresses, investigations and AIC complaints will be more feasible.

With the stricter regulations for e-commerce businesses, the hurdles and requirements for bad-faith sellers to set up an online selling channel have increased. This could make it easier to remove existing operators, as it will be harder for the infringer to operate a new online business by using a different identity. While this may depend on how e-commerce platforms choose to patrol their sites, the obligation imposed and the possibility of facing a fine is a sufficient catalyst for setting up proper mechanisms to monitor how operators create new accounts.

It could take time for existing operators to comply with the new requirements and it may be unrealistic to rely upon e-commerce platforms to proactively enforce the requirement. The law provides that e-commerce platforms must warn, suspend or terminate business operators who violate laws and regulations in accordance with their terms of services and transaction rules. Brand owners may therefore take action against non-compliant business operators or infringers by filing complaints with the e-commerce platforms and, if necessary, the SAMR, which has the power to order rectification.

New law in action

Since the implementation of the law, many local AICs across the country have started issuing online business registrations to operators. To illustrate the overall implementation of the registration requirement, as of 31 January 2019 (one month since the implementation of the law) the AIC of Harbin has reportedly issued 49 e-commerce business registrations, seven of which are for Taobao, 20 for WeChat, and six for Pinduoduo. However, this figure cannot be compared to the total numbers of operators online. Further efforts will be required before this requirement and the law are fully implemented.

As well as the requirements for business registrations, other aspects of the law have been implemented. There have reportedly been various actions taken by the relevant authorities against the unauthorised sale of medical products, investigations against alleged alterations of customer review records and customs actions against parallel importer failures to pay duties. It appears that local authorities across the nation are taking initiatives to enforce the law.

Given the increasing popularity of e-commerce among business operators and consumers, there will likely be further practical guidelines concerning the implementation of the opinions and the law.