Protecting the consumer

According to the Draft, a consumer has been redefined as any natural person who buys or uses commodities or receives services for purposes which are outside his trade, business or profession. With this international widely-used definition of the consumer, the scope of the Consumer Code will be clarified and the above mentioned inconsistency will be repealed.

Right of revocation

Under current Chinese law, a right of revocation does not exist. The right of revocation is a right of the consumer to unilaterally withdraw from a contract within a certain period of time. The granting of a right of revocation is a limitation of the legal principle “pacta sunt servanda” (the principle of loyalty). Therefore, such a right could only be justified if the consumers' autonomy has been affected.

One example is door-to-door selling when an ad hoc analysis of the relevant information is not possible for the consumer. Another example is distance selling, at which a reliable assessment of the goods or services by the consumer is only possible after the formation of a contract.

To compensate the impaired contract parity in these situations, the draft will provide a right of revocation for the consumer within 30 days after contract formation for door-to-door selling and distance selling transactions.

When the consumer exercises this right, the business operator has to bear the costs of returning the goods. Concurrently, the consumer is obliged to return the goods. Nota bene, the right of revocation will be excluded if the resale of goods is not feasible.

However, this new right is highly controversial among Chinese legal scholars. Consumer protection law should not disregard the social and economic situation of the PRC. The quality of goods and services in large parts of China - particularly in rural areas - is still underdeveloped. The internal market consists mainly of small family enterprises. It is feared that the powerful weapon of the right of revocation would harm companies and threaten the very existence of family enterprises. Also, there is a strong concern regarding the risk of abuse of this right.

These arguments are already known from discussions based on the context of European consumer law. The European experience shows that these concerns are not justified.

Data protection

In our information age, the protection of data is tremendously important because data is rampantly collected via the internet and evaluated by companies for commercial purposes. Even the world's leading corporations are accused of breaching consumers' data privacy. The commercial misuse of data (for example, the sale of customer data) is common in China due to a lack of data protection regulations. Furthermore, the continuing harassment of consumers through telemarketing calls or short messages via mobile phones are consequences of this lack of data protection.

Section 14 of the Draft will end this status quo by a consumer's right of protection of personal data. The draft even restricts the collection of personal data by companies. According to the Draft, personal data is considered: name, gender, age, occupation, address, health status, family status, or any data relating to consumption habits. But the Draft does not reveal how this right can be enforced. In practice, this could be a crucial challenge.

Content control of general terms and conditions

A core element of European consumer protection in contract law is the judicial review of general terms and conditions (GTCs). Any term or condition which does not pass content control is ineffective. The PRC Contract Law (中华人民共和国合同法) (Contract Law) and the Consumer Code contain provisions for the judicial review of the GTCs (section 39 and the following sections of the Contract Law, and section 24 of the Consumer Code). However, in comparison to the consumer code in Germany, these regulations seem to be quite sketchy and superficial.

For instance, China's Consumer Code lacks regulations on how the GTCs could become a valid part of a contract. In light of the increasing number of cases in which consumers are disadvantaged by GTCs, content control should be tightened. The Draft contains no provisions to this matter.

Punitive damages

Criminal and general preventive regulations are increasingly being incorporated into the Chinese law on damages. Already, the Consumer Code stipulates in section 49 that a consumer can receive double damages from the business operator if the business operator is deceptive about the quality of a product or a service.

The Draft raises punitive damages to the maximum of 10 times of the price of the good(s) or service(s), and in this respect drastically exacerbates the liability of the entrepreneur. A similar provision already exists for food products (in section 96 of the PRC Food Safety Law (中华人民共和国食品安全法)).

The punitive damages for other products has been unlimited since the year 2010 (section 47 of the PRC Tort Liability Law (中华人民共和国侵权责任法)). Lawmakers apparently believe that only allowing unlimited punitive damages would have a preventive effect.

Class action

The Draft aims to improve not only the substantive law but even the law of procedure. According to the Draft, a right to sue on behalf of the consumers will be granted to consumer associations. Such a class action provision is expected to be a great improvement for consumer protection in China. Consumers' associations could act in the interest of the consumer against violations of consumer rights. They could inter alia claim damages for consumers on their behalf.

Especially when an indefinite number of consumers are affected (for example, the so-called “milk powder scandal” in 2008 where there were 300,000 victims, including six infant deaths), a class action filed by a consumer association is an appropriate way to solve legal disputes. Consumers often do not venture to make a claim because of the economic risk and other circumstances, and this renders their rights worthless.

A class action also helps to relieve the workload of the judiciary. However, the introduction of class action would require legislative modifications of the procedural law.

Conciliatory proceedings

Consumer disputes predominantly have a low value in litigation but are tried before the ordinary People's courts. The trials are too often lengthy and costly. A fast and inexpensive method for resolving consumer disputes is arbitration (section 34, number 2 in the Consumer Code). This also relieves the workload from the People's courts because the trials are carried out by consumer associations. But, the benefits of arbitration for consumers still remain questionable because the legal effect of an arbitration agreement is unclear. While such an agreement is regarded by some legal scholars as a mere legal contract between private parties, it is also ranked as a writ of execution. Both alternatives seem to be inadequate. A mere private treaty wouldn't help consumers in asserting their interests. On the other hand, an arbitration agreement shall not be equated to a writ of execution. A writ of execution can only be issued by courts and not by social organisations.

Lawmakers are aware of this problem. According to the Draft, on the basis of the arbitration agreement a settlement agreement will be issued by the respective consumer association. This settlement agreement is legally binding and enables the entitled person to commence a levy of execution.

Simplified arbitration proceeding

Another innovation of the Draft is that consumer disputes concerning a low value in litigation could be tried in a simplified arbitration proceeding. This proceeding, developed by arbitration commissions, should also be cost effective and time-saving, and thus encourage consumers to attempt even small claims against business operators.

Burden of proof

Many consumers' claims are rejected for a lack of evidence. After purchasing a defective product, consumers can hardly prove that the defect existed at the time of hand-over, while business operators can prove the contrary relatively easy. In comparison, under German law, there is a stipulation that says when a material defect manifests itself within six months after the date of the hand-over, it is presumed that the product was already defective when delivered. The burden of proof for the contrary is imposed on the seller. A similar provision in favour of the consumer has not been incorporated into Chinese law and is unfortunately not yet provided in the Draft.

Final thoughts

The revision of the Chinese Consumer Code is on the right track, with its inspiration coming from European legal systems. With the above-mentioned modifications, the protection of Chinese consumers will be further strengthened. The biggest question is, however, how effective the consumer law will be in practice, in particular the implementation class actions and simplified arbitration proceedings. Also, the appreciation of a conciliatory proceeding is a huge step forward in this respect. Furthermore, strengthening consumer associations at the national and local level is still crucial.

It is hoped that other improvements such as the judicial review of GTCs and the shift of burden of the proof for purchased goods will be implemented in the final version of a new Chinese Consumer Code.

Dr. Jörg Binding, Project Director, Sino-German Program of Consumer Protection and Product Safety, Beijing