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Could your advertising in China be illegal?

As local authorities continue to strengthen and implement existing laws on advertising activities, particularly in the technology sector, companies should be on guard about what constitutes a breach

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Foreign companies operating in China often make advertising mistakes that are in violation of the country’s laws without even realising it, writes Kristina Koehler-Coluccia from Woodburn Accountants & Advisors

International companies promoting their business in China will design advertising campaigns made for TV, newspapers, websites or social media platforms like WeChat. However, some advertisers may be unaware of the differences between advertising regulations in their home countries, and the regulations in China.

According to Chinese laws, any “advertising activity” by sellers to promote their goods or services directly or indirectly through a certain medium or format is considered advertising, including objective copy on a company’s website.

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Foreign entities should therefore be careful when using their own website or public WeChat account to introduce their business, since even promotion on these kinds of platforms counts as advertising activity and is governed by advertising laws.

Unsurprisingly, most foreign companies will not consider the description of goods and services posted inside their premises, such as stores, offices or factories, as advertising. However, although these announcements are not directed at the public nor available on the internet, supervising authorities can investigate improper advertisements and show up unannounced to do a random check on the premises. They may also do online searches and use reports from consumers.

Cultural differences can lead to other misunderstandings regarding advertising too, especially when using ambiguous or suggestive descriptions. Some advertisers use provocative language to get consumers’ attention and promote a product. However, Chinese law does not permit the use of suggestive wording (such as alluding to sex or sexual services). Even if the suggestive information itself does not violate laws or core values, ambiguous or misleading content may violate false advertising rules.

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Another situation that may represent a level of risk for the company is when customers post their pictures, profiles or personal information on the business app. This can be problematic since it is an area governed not only by advertising laws but also by the Civil Code and the Personal Information Protection Law (PIPL).

If there is no contract between the entity and the customer agreeing on the licensing period, usage scope, and purpose of use of their image or profile, and their personal information continues to be used in advertising materials, the company could be reported by the customer, and they have the right to demand compensation or the immediate removal of their details.

If the advertising is related to medical services, the business may also be liable for an administrative fine by the advertising and medical regulatory authorities.

The Advertising Law was amended in 2018, and since then, fines for improper advertising have been reduced. This may be due to the impact of the Covid-19 pandemic, as authorities were more concerned about economic recovery. However, the “costs” of violating advertising laws go far beyond administrative fines, and can negatively impact a company’s image or destroy its reputation.

For the last decade or so, the Administrative Penalty Decision Database of the State Administration for Market Regulation (SAMR) has been publishing information about administrative penalties imposed on entities. This has made the process more transparent and allows the public to have access to information about violations of the law. The Administrative Penalty Decision Database of SAMR also posts real-life cases on its website, which is open to the public and can be accessed by anyone.

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The fast growth of the internet has created concerns about the monopoly of big internet companies, and the Chinese government has started to regulate the digital market by increasing scrutiny and penalties. Last year, SAMR revised its online advertising guidelines to regulate advertising online and promote its healthy development, as well as protect the rights of consumers.

The internet is currently the most influential mass media and so internet platforms are assumed to bear higher responsibilities when it comes to internet advertising compliance. Due to the characteristics of online information – quantity, rapid change, and wide influence – identification is more important for internet advertising than traditional forms of advertising. In practice, it is common to see that relevant parties’ internet activities fail to mark their advertising information as “advertisements” or even deliberately mislead consumers by publishing content in formats like advertorials, appraisals or recommendations.

According to SAMR, “advertisements” should be clearly marked in the promotion of goods and services through a company’s internet activities, such as bidding ranking, news reports, experience sharing, review sharing, and additional shopping links. The Chinese authorities can find out about improper advertisements through a variety different channels, such as routine inspections, reports by consumers or search tools.

In general, investigators will evaluate several channels of advertisement, including indoor light box advertisements, official company websites, promotional boards and posts inside the office, WeChat public accounts, official apps and e-commerce B2C stores.

Over the past few years, China has been focused on developing a healthy and trustworthy social environment and creating a better legislative framework to protect public interests. Experts believe that local authorities will continue strengthening and implementing existing laws on advertising activities, particularly in the technology sector.

In the near future, compliance with advertising laws will become even more relevant. Companies and advertisers should make an effort to closely monitor their advertising campaigns and keep up to date with regulations and compliance requirement changes.

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