China introduces new law to streamline e-commerce market

Photo: Xinhua

China's first e-commerce law, passed in August, came into force at the start of this year and was quickly hailed as positive for the sector by official media, and yet the new law will drastically change the way of doing e-commerce businesses in the country.

According to state-run Xinhua News Agency, vendors on e-commerce platforms, WeChat, live-streaming websites, and other online platforms are required to register their business, receive a license, pay taxes, and be held responsible for marketing fake products. Rule-breakers can face fines up to 2 million yuan (US$290,900).

The law came into effect amid the rapid development and expansion of China's e-commerce industry.

The country's online retail sales of goods and services in 2017 rose to some 7,175.1 billion yuan, accounting for 19.6 percent of country's total retail sales, according to data from the China E-Commerce Research Center.

That expansion has largely been led by Alibaba Group Holding, through its online retail platforms Taobao and Tmall, and rival

The new law also addresses other important aspects of e-commerce, including false advertising, consumer protection, data protection, and cyber security, according to Xinhua.

Before the new was issued, most of the online sellers' revenues are completely personal and free from government taxes.

Huge blow to unregistered private shopping agents

With the introduction of the e-commerce law, many private shopping agents, also known as daigou in Chinese, will have to register as market entities and submit sales records to the tax bureau as well as other authorities.

If the new law is implemented to the letter, the costs of the online sells were expected to grow by around 20 percent, independent e-commerce analyst Li Chengdong said, adding that they will likely have to either raise prices or drop out from the industry.

Access to the industry was quite easy before, consumers could easily make deals online with private shopping agents after being attracted by advertisements on social media.

But now advertisements on platforms like Taobao and WeChat have dwindled significantly since the implementation of the e-commerce law.

Although specific measures to regulate daigou have not been released, rumors were spreading among the sellers, such as certain forbidden words in advertisements by a company could trigger a ban on its promotional activities on platforms.

Caixin reported that shopping sites like Taobao are tightening supervision over daigou, causing many to remove their products from the platforms and turn to WeChat instead.

To avoid possible troubles, some daigou attempted to carry on with their business by posting drawings of products instead of their true photos on WeChat, many of which are attached with captions in English, Korean, Japanese, and Russian.

Tencent, owner of the app, said it has not implemented regulations against daigou yet, according to the Beijing Youth Daily.

Challenges facing market regulators

The e-commerce law also increases the workload of market regulators due to the massive number of players on the e-commerce market.

According to a report by the China Internet Association, there were 20.18 million daigou in China in 2017.

"Now that the e-commerce law has gone into effect, officials must take prompt action in line with the new regulations," said a deputy director of the State Administration for Market Regulation. "But they might encounter an ocean of difficulties and challenges in their work in the future."

The unnamed senior official's remarks were echoed by status quo - the authorities have not been fully prepared to the changes.

It is reported that market regulators in cities like Beijing and Hangzhou still have no ideas of pushing ahead with registration and tax work.

Meanwhile, customs might face heavy workload of checking imports, and only the items beyond 5,000 yuan that the shopping agents brought from overseas were subjected to taxes.

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