New Chinese Law Takes Aim at Online Advertising

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By Mark Melnicoe

Sept. 1 — A new Chinese law taking aim at all forms of online advertising took effect Sept. 1, putting stricter limits on everything from false or misleading ads to search engines that mix “sponsored content” with other results.

Billed as a strong consumer protection measure after the well-publicized death of a 21-year-old student, the Interim Measures for the Administration of Internet Advertising were put forth July 4 by the State Administration for Industry and Commerce (SAIC) as a supplement to the Advertising Law of the People's Republic of China.

The rules come as online advertising has boomed in China, where the market now trails only the United States in revenue. Estimated online ad revenue in China totaled $33 billion last year, according to China Internet Watch, a research portal covering China's internet and technology. It is projected to nearly double to $63.5 billion in 2018.

Search engine and e-commerce ads constitute more than 60 percent of China's online advertising revenue, China Internet Watch said in a study that projected annual growth of 36.1 percent will slow only slightly between now and 2018.

“These will be the first set of national level rules specifically regulating advertising activities through the Internet and other online media,” noted the Hogan Lovells law firm in an online alert. “This is in line with the Chinese government's earlier attempts to regulate virtually all areas of cyberspace,” said the post written by the international firm's attorneys in Hong Kong and Shanghai.

The new law took on urgency after an incident last spring, when a university student used China's leading search engine, Baidu, to seek treatment for his cancer. He unknowingly clicked on a sponsored content search result and bought an expensive experimental treatment provided by a hospital he chose based on the search result.

The new regulations apply to “commercial advertising for direct or indirect marketing goods or services in the form of text, image, audio, video, or others means through websites, web pages, Internet applications, or other Internet media,” the Davis Wright Tremaine law firm in Shanghai wrote in an online client alert Aug. 3. “Internet advertising includes advertisements in text, pictures, video, or other medium that contain links, e-mail advertisements, sponsored-search advertisements, and advertisements in commercial displays.”

The new law's provisions include:

  •  A prohibition on sale of goods or services that are not allowed for sale, production or use in China;
  •  A prohibition on ads for prescription drugs and tobacco;
  •  Paid search results must be clearly differentiated from other results;
  •  Ads or links to ads in e-mails are prohibited without the consent of the receiver; and
  •  Online advertisers are responsible for the authenticity of the content of ads.

Companies Urged to Watch Interpretations

“The Interim Measures, together with the amended Advertising Law, are the first step for Chinese authorities to regulate the internet advertising industry after years of booming development without meaningful regulation,” Lin Zhu and Ron Cai wrote for Davis Wright Tremaine. “Some provisions and requirements remain unclear. It is worth keeping a close eye on the regulator's interpretations, particularly those interpretations reflected in the regulator's future enforcement of the amended Advertising Law and the Interim Measures.”

Hogan Lovells warned clients that China's Consumer Protection Law “and the increasing assertiveness of Chinese consumers means that companies now need to tread more carefully than ever, and need to review whether their advertisements and terms and conditions are consistent with the new consumer protection and advertising rules.”

The SAIC issued a draft of the interim measures a year earlier, which was supposed to take effect Sept. 1, 2015. But that set of measures was pulled back amid an outcry in the industry.

To contact the reporter on this story: Mark Melnicoe in Shanghai at correspondents@bna.com

To contact the editor responsible for this story: Keith Perine at kperine@bna.com

For More Information

The new online advertising law, Interim Measures for the Administration of Internet Advertising, is available, in Chinese, at http://www.saic.gov.cn/zwgk/zyfb/zjl/xxzx/201607/t20160708_169638.html.

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