New ad law pushes consumer protection

The advertising market of China is one of the most exciting and challenging markets in the world due to the country's size, complexity, and diversity. The fast-developing economy comes with rapidly-growing consumption demand which consequently gives a powerful boost to the advertisement business. But like many other industries have experienced, legislative development obviously lags behind, which results in many problems amid the progress. Although authorities have tried to tackle these problems via various administrative campaigns, advertisement abuse and fraudulent cases still often end up in media headlines. The various scandals are not exclusive to domestic players. Even big international companies get penalised – P&G received a Rmb6 million fine in March due to its bombastic advertisement for its oral care product Crest.

About 20 years after it was issued, the PRC Advertising Law had its first amendment approved by the top legislator on April 24 2015. It enters into effect on September 1 2015. The revision aims to solve existing problems and tackle new issues emerging with new media like the internet. In general, it provides a more comprehensive legal framework with much stricter requirements on how to behave when advertising in China. It offers more protection to consumers, which means more regulatory requirements that businesses need to follow.

Content control tightened

The new law broadens the scope of fraudulent advertising. Deceiving statements and misleading content are not allowed. Compared with the old law, the new law provides very detailed criteria to determine fraudulent advertisements, namely

(i) non-existing goods or services;
(ii) information and sales promises relating to the goods or services that deviate from facts and have a substantial impact on a purchase decision;
(iii) fictional, forged or unverifiable information as proof (such as research results, statistics or reference);
(iv) fabricated effects of using goods or receiving of services; and
(v) other deceiving or misleading situations.

This is a step further than the earlier criteria under the PRC Anti-unfair Competition Law (中华人民共和国反不正当竞争法), which only touched upon the second criterion. In this context, the new law further regulates the controversial and often misleading form of “soft advertising”, such as featuring ads as news reports. These must now be marked with a clear indication of “advertisement” as well as a countdown when broadcasted on TV or radio. Similarly, the misuse of advertising elements relating to public functions is also prohibited by a more comprehensive provision that blocks not only the use of names of state institutions and staff but also their images as well as any disguised forms of use.

The new law reiterates that those who mandate ads are responsible for the trueness of their advertisement. At the same time, ad agencies will be punished if they know or ought to have known that the advertisement is fraudulent and a violation may result in a fine of up to five times of their advertising fees or even up to Rmb1 million when the former is too low or difficult to calculate.

Audience regulated

Other than content control, the new law also regulates the target audience of advertisements. Protection of minors is now stressed.

Media targeting minors must no longer publish ads for medical treatment, drugs, healthcare foods, medical devices, cosmetics, alcohol and beauty products. They must also not publish internet gaming products that adversely affect the physical and psychological health of minors. Ads aimed at children up to 14 years old that incite them to request their parents to purchase the advertised goods or services or those that can cause imitation of unsafe behaviour are prohibited.

The new law further prohibits advertising in schools (kindergartens, primary and high schools). Unless for public service purposes, those making use of necessities in schools such as textbooks, stationery, school uniforms and school buses to advertise – even indirectly - are also prohibited. In addition, children under 10 years old are not permitted to be taken as visual representatives for advertisements. Any violation of these restrictions will result in an administrative punishment, which, in extreme cases, means a fine of up to Rmb1 million or revocation of the business license.

Many of these rules aimed at protecting minors may appear similar to those in the home jurisdictions of international companies, which already follow a certain global ethical code of conduct in this regard. The tightened control in China may therefore not be a huge concern.

Specific industries targeted

The old law already addresses special restrictions on sensitive products such as drugs, medical devices, healthcare foods, alcohol, cosmetics, pesticide and tobacco. Some (drugs, medical devices and healthcare foods) are further subject to more detailed advertising control requirements and procedures formulated by the China Food and Drug Administration (CFDA), such as the Measures for the Examination of Drug Advertisements, the Measures for the Examination of Medical Device Advertisements and the Tentative Provisions on Health Care Foods Advertisement Review. The new law reiterates control over the advertising of these products and adds further restrictions. It broadens the scope of non-advertisement products (e.g. medicines, medical devices and treatment methods for drug rehabilitation as well as pharmaceutical precursor chemicals). Advertisements for prescribed drugs which are not barred shall only be published on professional medical journals. Critical information such as adverse effects and the necessity of professional pharmaceutical advice must be clearly stated.

The rampant abuse of drug and healthcare-related advertising has caused much public concern. In response, the new law now prohibits anything other than medical treatment, drugs or medical devices to be advertised if it indicates that it has treatment or medical effects. These ads must also not contain any medical terms or confusing phrases linked to drugs or devices. A new clause has been added specifically addressing the advertising of healthcare products and is very close to that already seen under the Tentative Provisions on Health Care Foods Advertisement Review promulgated by the CFDA on May 24 2005. The revised Advertising Law further prohibits both traditional media (like radio, TV and publishing houses) and new media (like the internet) from promoting medical or healthcare products through courses or programs which, in practice, are quite often used to circumvent advertising control.

In addition to the medical and foods sectors, new regulatory requirements of advertising concerning other industries were also introduced. Those dealing with these products or services will face greater compliance burdens.

Online media addressed

The revised Advertising Law catches up with the modern business world by having special regulations for cyber advertisements. It defines the meaning of “advertisement”, which was not clearly explained in the previous version. According to the definition under the new law, advertising through all media and methods are covered by and subject to this law. This includes online advertisements.

The new law echoes the data protection concerns already addressed in existing rules such as the Standing Committee of the National People's Congress' Decision on Strengthening the Protection of Online Information (全国人民代表大会常务委员会关于加强网络信息保护的决定) issued on December 28 2012 and the PRC Law on the Protection of the Rights and Interests of Consumers (Consumer Protection Law) (中华人民共和国消费者权益保护法) revised on October 25 2013. The Advertising Law stipulates that no spam must be sent to consumers without explicit consent. An electronically-sent advertisement must clearly indicate the real identity and contact details of the sender, and must provide recipients the choice to “opt out”.



Interestingly, the new law is silent on the issue of in-app advertisements, i.e. pop-up ads within an application or software which may be either online or offline. Considering the complexity of business activities in the cyber world, the few rules under the new law are very general and limited. It is reported by public media that the State Administration for Industry and Commerce is working on further detailed rules to fill gaps in the area of online advertising.

Consumer protection at the core

The PRC Advertising Law amendment reflects the problems that have accumulated in the past 20 years. These problems are not exclusive to this industry, especially if seen in the broader context of how fast the country's legal system is developing and how laws are enforced.

The lifted foreign investment access restrictions to the advertising industry in 2005 expedited the development of the industry as many international players rapidly expanded their businesses in China. The competition adds performance pressure on the business operators to behave more aggressively and the public is consequently faced with an increasing number of confusing and misleading advertisements on a daily basis. This has long been tolerated as a fast economic growth rate was priority. But now the situation has changed. Policy is shifting to focus more on the welfare of society rather than growth. Also the weight of domestic consumption is becoming increasingly important to driving the country's economy, which is undergoing restructuring to rely less on export and investment. These changes have manifested into legislative developments, such as the various data protection rules aimed at protecting consumer privacy and the amendment to the Consumer Protection Law.

The foreign community has witnessed – and some even been affected by – the intensification of law enforcement when the authorities take action against non-compliant practices like price cartel or bribery, which, in the past, may have been seen as a necessary local tactic to achieve flexibility and growth. But this is becoming a serious problem for business operators. The amendment of the Advertising Law is just one small part of such a big picture. Although it may increase compliance costs for certain types of businesses that heavily rely on marketing and advertising (e.g. FMCG, retailing), in the long run it will help reinforce order and certainty in the market and build consumer confidence. All international operations dealing with consumers must be prepared to embrace the new law and adapt to the trend in this vast market.


Dr Michael Tan and Lynn Zhao, Taylor Wessing, Shanghai