Advertising & Marketing 2021

Last Updated October 07, 2021

China

Law and Practice

Authors



Haiwen & Partners was founded in May 1992 and is one of the leading general practice law firms in the People's Republic of China, with around 200 lawyers in total working in its Beijing, Chengdu, Hong Kong, Shanghai and Shenzhen offices. The firm started its pioneering entertainment and media law practice more than a decade ago, involving a wide variety of practice areas in the entertainment industries, including the development, production, and distribution of film and television projects; large theme park projects; recording and music publishing; live concerts; literary publishing; advertising; and new media matters. The firm’s clients include major film studios, leading investment companies, as well as top talent, producers and directors, both in and outside China. Combined with its strong practice in the capital markets and M&A areas, Haiwen also provides extensive legal services to clients conducting IPOs, M&A, and other general corporate finance transactions in the entertainment industries.

The Advertising Law of the PRC (the Advertising Law – 《广告法》) sets forth the legal framework in connection with advertising and marketing practices in the PRC. The law was initially adopted in 1994, and was amended, in 2015, 2018 and 2021 respectively, in response to the rapid development of the advertising industry. In addition, provisions regulating advertising and marketing activities are found in various national laws and administrative regulations, including:

  • the newly promulgated Civil Code (《民法典》);
  • the Anti-Unfair Competition Law (《反不正当竞争法》);
  • the Food Safety Law (《食品安全法》);
  • the Drug Administration Law (《药品管理法》);
  • the Law on Protection of Rights and Interests of Consumers (《消费者权益保护法》);
  • the Provisional Measures for Administration of Internet Advertising (《互联网广告管理暂行办法》); and
  • the Regulations on Cosmetics Supervision and Administration (《化妆品监督管理条例》). 

The State Administration for Market Regulation (SAMR), and a local counterpart to the SAMR, an AMR, is the primary regulatory authority that enforces both the Advertising Law and the Anti-Unfair Competition Law. 

While the SAMR is the key government authority responsible for overall market regulation, the Advertising Law also empowers certain regulatory bodies to work with the SAMR to supervise advertising activities in specific industries. For instance:

  • advertisements for medical treatment will be examined by the competent health administrative authority;
  • advertisements for medicine, medical devices and dietary supplements by the food and drug supervision and administration department; and
  • advertisements for pesticides, veterinary drugs and genetically modified agricultural products by the agriculture administrative department.

Under PRC laws and regulations, the persons or entities that can be held liable for false advertising include advertisers, advertising agencies, the publishers of adverts, and also, in certain circumstances, those who endorse products. Administrative penalties resulting from violation of the Advertising Law and Anti-Unfair Competition Law range from fines, forced cessation of illegal acts, confiscation of illegal proceeds and revocation of business licences. Criminal liability for false advertising, when the violation amounts to a crime, may apply to advertisers, advertising agencies and the publishers of adverts (Article 222, the Criminal Law, (《刑法》)).

Advertisers

The advertiser, as the provider of the product/service, is in principle liable for false advertising with limited exceptions. The advertiser may be subject to fines or confiscations in an administrative ruling and compensations in a civil proceeding. If the false advertising constitutes a criminal offence and the advertiser (being a legal person) is found guilty of false advertising under the Criminal Law, the directly responsible individual or the individual taking primary responsibility for that false advertising may be held chargeable (Article 231, the Criminal Law).

Agencies and Publishers

Both the advertising agent and the publisher of an advert must take responsibility for verification in connection with an advertisement. They shall verify, among other things, the certificates and other types of files provided by the advertiser and also the content of the advertisement, in order to make sure the advertisement is consistent with the qualification of the product. For instance, the advertising agent and advert publisher shall verify if a certificate of grant of patent is in place if the advert contains a claim that the product is under patent protection.

Endorsers

A person who endorses a product may be held liable for promoting falsely advertised products, if the endorser is, or should have been, aware of the fact of false advertising but they still recommended or otherwise endorsed the product or service. In such cases, the AMR may confiscate the illegal income and impose a fine on the endorser (Article 61, the Advertising Law). In addition, if the subject product or service of a false advertisement concerns the life or health of consumers and causes injury or damage to the consumer, the endorser shall take joint liability with the advertiser, advertising agent, and advert publisher (Article 56, the Advertising Law).

Third Parties

Other participants involved in a false or misleading advertisement may also be held liable. For example, the law requires that an administrator of a public place, an operator of a telecommunications business, or an internet information service provider shall stop the sending or publishing of illegal advertisements through the release platform if the administrator, telecommunications operator or internet information service provider knows or should have known about the illegality relating to the advertisements in question (Article 45, the Advertising Law). Through the operation of this provision, the law essentially imposes liability for verification on these third parties.

The Advertising Law outlines self-regulation rules in the advertising and marketing sector. The main responsibility of self-regulatory bodies is to assist the government authority to regulate the industry, set up industry standards and develop an industry self-regulation system. As the key self-regulatory bodies, the China Advertising Association (CAA) and the China Association of National Advertisers (CANA) have adopted certain ethical codes to help maintain order in the advertising market and strengthen self-regulation in the industry.

Violations of these ethical codes may result in admonishment or a circulated notice of criticism within the organisation.

A private right of action is available for consumers and private citizens to challenge advertising practices. When the content of an advertisement infringes the legitimate interest of a consumer or private citizen, the latter may have a cause of action and claim for remedies based on various laws, depending on the actual circumstances in question. These possible laws include the Civil Code, the Advertising Law, the Law on Protection of Rights and Interests of Consumers, the Copyright Law (《著作权法》), and the Law of Tort (《侵权责任法》). Among others, the Advertising Law specifically provides for a cause of action for consumers against the advertiser if the advertisement is fraudulent, deceptive or misleading and the consumer’s interest is harmed after the purchase of products or receipt of services (Article 56, the Advertising Law). The remedies available for private actions include, in general, fines, rescission and apologies.

Private citizens may challenge advertising practices in capacities other than that of consumers. For example, an individual, such as a celebrity, may challenge an advertiser if the advertisement uses their likeness or other personal features without an appropriate release. A copyright owner may also dispute with the advertiser if the advertisement incorporates copyrighted work without a proper licence in place.

The Advertising Law stipulates stringent rules in connection with certain regulated industries, including for example:

  • certain prescribed drugs are prohibited from being advertised, including narcotics, psychotropics, and toxic drugs for medical use;
  • prescription drugs other than those set out as being prohibited for advertising may only be advertised in specialised pharmaceutical or medical journals jointly designated by the health and the drug administrative departments of the State Council;
  • any advertisement for medicine, medical equipment, and medical services may not include content such as a statement on the recovery or response rate;
  • advertisements for tobacco may not be published in mass media, in public places or outdoors; no tobacco advertisement shall be sent to minors;
  • advertisements for wine shall not contain any inducement or instigation to drink or immoderate drinking; and
  • advertisements for investment products and services shall contain a reasonable reminder or warning of the possible risks.

In addition to the Advertising Law, there are additional regulations governing the adverting of products and services in special sectors, including the following.

  • Internet advertising – the Provisional Measures for Administration of Internet Advertising issued by the former State Administration of Industry and Commerce (SAIC) and the Measures for the Administration of Live Streaming Marketing (for Trial Implementation) (《网络直播营销管理办法(试行)》) jointly issued by the Cyberspace Administration of China and several other government agencies promulgate special rules over advertisements published on the internet and via live streaming.
  • Radio and TV advertising – the Administrative Measures for the Broadcasting of Radio and Television Advertisements (《广播电视广告播出管理办法》) and its Supplemental Provisions (《<广播电视广告播出管理办法>的补充规定》), issued by the former State Administration of Radio, Film and Television (SARFT), whose successor is the National Radio and Television Administration (NRTA), set forth rules on the possible broadcasting times and content of advertisements published through radio and TV channels.
  • Food – the Interim Measures for the Administration of Review of Advertisements on Drugs, Medical Devices, Dietary Supplements and Formula Foods for Special Medical Purposes (《药品、医疗器械、保健食品、特殊医学用途配方食品广告审查管理暂行办法》), issued by the SAMR, set forth the standards and procedures for review of adverts for drugs, medical devices, dietary supplements and formula foods for special medical purposes.
  • Tobacco – the Law on Tobacco Monopoly (《烟草专卖法》) and the Regulations for the Packaging & Labelling of Cigarettes (《中华人民共和国境内卷烟包装表示的规定》) set forth restrictions on the content and method of advertising on tobacco products.
  • Cosmetics – the Regulations on Cosmetics Supervision and Administration set forth general requirements on the content of adverts and prohibit implication of any medical effect in cosmetic advertising.

In the past 12 months, we have seen important regulatory updates regarding deceptive advertising, including in relation to:

  • internet advertising – the Measures for the Administration of Live Streaming Marketing (for Trial Implementation); 
  • cosmetics advertising – the Regulations on Supervision and Administration of Cosmetics;
  • educational advertising – the Opinions on Further Easing the Burden of Homework and Off-Campus Training on Students in Compulsory Education (《关于进一步减轻义务教育阶段学生作业负担和校外培训负担的意见》); and
  • financial advertisement – the Notice on Further Regulating Financial Marketing and Publicity Activities (《关于进一步规范金融营销宣传行为的通知》).

On the law enforcement front, according to the 2021 Agenda of the Inter-Ministerial Joint Meeting on Rectifying False and Illegal Advertisements on 4 April 2021 (2021 Agenda), the areas of emphasis are actions to be taken against:

  • falsely alleging products to be “specially supplied” or “exclusively supplied” for celebration events in connection with the 100th anniversary of the founding of the Communist Party of China (CPC) (See 1.9 Political Climate);
  • deceptive advertising in areas closely related to people’s well-being, including medical treatment, cosmetic medicine, medicines, dietary supplement, medical devices, formula foods for special medical purposes and cosmetics;
  • deceptive advertising related to COVID-19 (see 1.8 Impact of the COVID-19 Pandemic); and
  • false advertising in internet marketing, especially during e-commerce shopping festivals, etc.

Ever since the beginning of the COVID-19 pandemic, regulatory attention has been focused on sanctioning false advertising by companies seeking to capitalise through mentions of the virus in their advertising and marketing efforts. In February 2020, the Supreme People’s Court, Supreme People's Procuratorate, the Ministry of Public Security, and the Ministry of Justice jointly clarified that false advertising related to the prevention or control of the COVID-19 emergency falls within the scope of the crime of false advertising (Article 2.5, Opinion on Cracking Down Illegality and Crime that Jeopardise the Prevention and Control of the Coronavirus Pneumonia Epidemic (《关于依法惩治妨害新型冠状病毒感染肺炎疫情防控违法犯罪的意见》), February 2020). Following this Opinion, court rulings and administrative penalty decisions have shown a tendency to impose penalties at the heavier end permitted by law on cases related to COVID-19. In December 2020, an individual who falsely claimed possession of a large amount of face masks on social media and accepted orders totalling CNY192,806 was found guilty of fraud and sentenced to six years and two months' imprisonment. 

To date, we have seen continued efforts by competent authorities to crack down on fraudulent and deceptive advertising activities related to COVID-19, such as marketing and sales of purported “virus cures”. Measures carried out by local authorities include, without limitation:

  • releasing notices or guidance on strengthening deceptive advertising supervision during the pandemic;
  • imposing prompt and strict penalties;
  • publicising typical cases to warn market participants; and
  • censoring advertisements that contain sensitive key words (COVID, special effect, wild animals, masks, disinfectant, etc) using online surveillance systems. 

As 2021 marks the 100th anniversary of the founding of the CPC, AMRs nationwide have issued reminders to marketers stressing the upholding of correct public opinion orientation in advertisements and carried out operations to enforce this requirement. Among other things, such reminders prohibit taking advantage of the anniversary celebrations, appropriating martyrs’ names or likenesses for private business interests, using incorrect maps or falsely claiming goods to be “specially supplied” to “state banquets”. Furthermore, consistent with the 2021 Agenda, local AMRs take action against advertisements “that involve politically sensitive issues, bring negative social impacts or challenge good social morals” or advertisements that incite irrational consumption, extravagance and waste.

Another notable trend is that to uproot the negative influence of celebrity culture upon the young generation, regulatory authorities, together with government-backed industry associations, have heightened regulation on celebrities to urge them to follow professional ethics and raise legal awareness. Since August 2021, the public has witnessed a series of abrupt denouncements of certain once highly influential celebrities due to their suspected criminal acts or unethical or controversial behaviour, and consequentially their endorsements have been terminated rapidly. As a result of the enhanced regulation and change of public atmosphere, a heavier burden is imposed on advertisers to conduct thorough background due diligence checks on potential endorsers and advertisers have been encouraged to enhance the moral clauses in their endorsement agreements to better cope with the potential moral risks of their endorsers.

According to Article 28 of the Advertising Law, any advertisement that defrauds or misleads consumers with any false or misleading content will be a false advertisement. Furthermore, the law specifies a list of scenarios where a false advertisement will be deemed to exist, including where:

  • the advertised product or service does not exist;
  • in connection with the product's performance, functions, place of production, uses, quality, specification, ingredients, price, producer, term of validity, sales condition, and honours received, among others, or the service's contents, provider, form, quality, price, sales condition, and honours received, among others, or any commitments, among others, made regarding the product or service, there is any inconsistency with the actual circumstances that has a material impact on purchase decisions;
  • any scientific research result, statistical data, investigation result, excerpt, quotation, or other information, which is fabricated or forged or cannot be validated, has been used as certification material;
  • the results of using the product or receiving the service are fabricated; and
  • consumers are otherwise defrauded or misled with any false or misleading content.

In a judicial interpretation issued by the Supreme People’s Court, the court noted that “[i]n determining whether it is misleading and false publicity, the People's Court shall use as the basis such factors as daily life experiences, the general attention of the relevant public, the facts causing misunderstanding and the actual circumstances of the subject of the publicity, etc” (Item 3, Article 8, Supreme People's Court, Interpretation on Several Issues Concerning the Applicable Laws in the Trial of Unfair Competition Civil Cases, 《最高人民法院关于审理不正当竞争民事案件应用法律若干问题的解释》).

The scope of advertising claims subject to the regulation of the Advertising Law is broad, including both express claims and implied claims regarding products and services. Any product or service-related information that can have a material effect on a consumer’s decision-making is regulated by the Advertising Law, including introduction of the scale, location and environment of the advertiser, as well as claims having to do with business goodwill and the history of the advertiser. The Advertising Law does not set forth how to distinguish express and implied claims; instead, the court and administrative regulator would have substantial discretion to determine whether there is an actionable implied claim. The key to determining whether there is an actionable advertising claim is whether the advertisement has any false or misleading content or defrauds or misleads consumers. The misrepresentation made by an advertisement may be any information relating to product quality, composition and ingredients, function and use, expiry date and place of origin. To avoid being challenged, an advertising claim should be truthful and precise and an “implied claim” is not a safe harbour.

Advertising claim substantiation is largely achieved by verification of the certifications of the advertiser/advertised products. The Advertising Law requires the advertising agent and advertisement publisher to examine the relevant certification documents, and to verify the content of an advertisement under laws and administrative regulations. According to the Regulations for the Management of Advertising, the following certification documents need to be provided respectively in connection with the corresponding types of advertisements:

  • for a commodity advertised as meeting quality standards – the certificate of inspection issued by the competent standardisation administrative department or by a quality inspection body;
  • for a commodity advertised under the title of a high-quality product – the certificate of a high-quality product issued by the government;
  • for a commodity advertised as under patent protection – the certificate of grant of patent;
  • for a commodity advertised as bearing a registered trademark – the certificate of trademark registration;
  • for cultural, educational or public health advertisements – the certificate issued by the competent administrative department; and
  • the certificate issued by the competent authority, or its authorised institution, in the case of other types of advertisements for which certificates are required.

The Advertising Law does not specifically provide for standards generally applicable to testing that is conducted to support advertising claims. There have been some judicial findings indicating that an advertising claim is more vulnerable to being challenged if the statistics used in the claim are research results of institutes owned, or sponsored, by the advertiser itself.

According to the Drug Administration Law, prior to the launch of any new drug, three rounds of clinical trials are required to verify the safety and effectiveness of that drug. After the launch, the drug manufacturer shall collect information and look into safety incidents according to the clinical treatment of patients. Therefore, for advertisements of such pharmaceutical products, the requirement for clinical trials is in fact included in the supporting documents (such as relevant permits) required to be submitted. In addition, adverts for medical drugs are subject to content censorship review.

Advertising claims in connection with all the following types of products and services are subject to special rules as stipulated in the law: education, real estate, dietary supplements, medical, drugs, medical devices, goods or services with an expected return on investment, crop seeds, tree seeds, grass seeds, breeding livestock and poultry, aquatic seedling and species breeding, etc (Articles 24-27, the Advertising Law).

In addition, certain expressions are specifically prohibited in an advertisement relating to a regulated industry. For instance, according to the Criteria for the Examination and Publication of Medical Device Advertisements (《医疗器械广告审查发布标准》), advertisements on medical devices shall not contain any commitment-related language, such as “safe”, “no toxic side effect”, “refund if found ineffective”, or “non-addictive”.

Comparative advertising is, with certain exceptions and constraints, permitted by the Advertising Law, provided, however, that no advertisement shall disparage the goods or services of any other producer or trader, and the advertiser, advertising agent, and advertisement publisher shall not conduct any form of unfair competition in their advertising activities. Notwithstanding the foregoing, with respect to certain categories of products – such as medical drugs, medical devices and dietary supplements – comparative advertising is not allowed, as the effect of these products varies on different users, and a direct comparison between products may be unfair.

For products and services not prohibited by the law from conducting comparative advertising, on the basis that there is scientific evidence and/or proof that the products/services being compared are of the same categories and are comparable in nature, comparative advertising is allowed, and identifying a competitor by name is not prohibited by the law per se.

Generally speaking, all advertising claims must be truthful, objective and provable. The law does not stipulate a specific standard for comparative advertising claims. However, the non-disparaging requirement discussed in 3.1 General Requirements is closely related to comparative advertising.

There is a general understanding that has developed regarding comparative advertising claims. First, the products or services being compared must be comparable in nature. A comparison between products of a different nature to distinguish the advertiser’s own product/service may be misleading to consumers and disparaging to the product/service with which it is being compared. An advertisement is not required to disclose the disadvantages of the subject product or service. However, in the case of comparative advertising, if the advertiser excessively emphasises the disadvantages of the compared product, while remaining silent about the disadvantages of its own product, such claims may mislead the consumer to believe that the product being advertised has no disadvantages. In such case, a comparative advertisement lacking complete information may be viewed as a false advertisement.

An advertiser may challenge claims made by a competitor based on different causes of action, including false advertising. If the advertiser exaggerates its own products and disparages the competing products, or publishes false advertisements which contain non-truthful information, the advertiser may be found to have conducted false advertising and commercial disparagement, and consequently be subject to administrative sanction for violating the Advertising Law and/or the Unfair Competition law. The penalties range from fines, cessation of the illegal act, elimination of effects and revocation of the Business Licence (Article 55, the Advertising Law and Article 20, Anti-Unfair Competition Law).

There is no particular trend with respect to comparative advertising in the last 12 months. However, as influencer campaigns have become more popular in recent times, advertisers should pay close attention to the content published by the influencer to avoid false advertising or commercial disparagement if the influencer presents the advertiser’s product as superior to a competitor’s.

Digital advertising has seen tremendous development in China over recent years. Forms of digital advertising range from advertising on social media to search engine advertising, e-commerce retail advertising, and in-feed advertising. All such advertising activities are primarily regulated by the Advertising Law and the Provisional Measures for Administration of Internet Advertising. Any advertisement appearing on digital platforms must comply with, in additional to the general rules of the Advertising Law, the special requirements for internet advertising. For instance, the SAIC issued the Notice on Launching Special Rectification on Internet Advertising in 2018 and the SAMR issued the Notice on Further Conducting Rectification on Internet Advertising in 2019 to call for severe crackdown on internet advertising violations and special campaigns to rectify internet advertising.

Digital marketing has become one of the key methods for business owners to expand their market and raise awareness of their brands. Some of the key challenges marketers often encounter in their practices are set out below.

Defining “Advertising”

Determining what counts as an advert and the role of players in digital advertising can be difficult. The Provisional Measures for Administration of Internet Advertising require all online advertising to be marked with the word “advertising”, regardless of its form. In practice, however, a significant quantity of “soft advertising”, which does not appear as traditional advertising, exists and can be effective in driving consumer interest. Prior to placing promotional content online, marketers should assess whether their marketing activity will be subject to any advertising rules and their own role in that activity, as the Advertising Law imposes different liabilities on advertisers, advertising agents, advertisement publishers and product endorsers.

Ensuring Content Originality

Given the tremendous resources and information available online, marketers must ensure the originality and quality of their advertising content and prevent copying from other resources without proper licensing or permission, which may lead to severe copyright issues.

Local Regulation

Becoming aware of the various applicable regional rules is a key marketing challenge. Each of the AMRs, the primary government agencies regulating advertising actives, has its particular scope of authority, based on regional territories, yet social media advertising often transcends regional boundaries. The marketer active in digital advertising may find it challenging to figure out which regional entity, and therefore which regional rules issued by that entity, are applicable to it.

Platform Restrictions

Marketers face additional restrictions imposed by the platforms. Strong advertising platforms, such as Tencent’s advertising ecosystem, have their own rules about advertising. A business owner has to comply with the terms and conditions as required by such platforms, on top of the mandatory laws and regulations.

Data Protection

Marketers may have to play safe with regard to data utilisation. If the marketer chooses to advertise on a less sophisticated social media platform, as opposed to a strong and sophisticated network, the marketer needs to be more careful about the rules protecting user data before it uses the data provided by the platform.

As to the liability of the advertiser for content posted by others on the advertiser’s site or social media channels, as long as advertising is deemed to be in existence and the advertiser is deemed as an “advertiser” within the meaning of the Advertising Law, that advertiser is required to “be responsible for the truthfulness of the advertisement” (Article 4, the Advertising Law). Bona fide reliance by consumers may be found, which could render the host advertiser liable due to content posted by others on its website or social media. The law does not distinguish the identity of the publisher to determine the liability of the advertiser. To avoid being held liable, it is advisable that the advertiser timely review the content on its site or social medial channels, and remove any undesirable content.

In principle, the same disclosure requirements apply to social media advertising and traditional media advertising. Meanwhile, it is noteworthy that Article 7 of the Provisional Measures for Administration of Internet Advertising provides that internet advertising shall be identifiable and clearly marked with an “advertising” label to be recognisable as a kind of advertisement to the public. Article 23 of the same measures states that internet advertising that is not identifiable shall be punished in accordance with the provisions of the Advertising Law. The current law does not provide for any exceptions for social media ads that have space limitations or constraints. As discussed in 4.2 Key Legal Issues, however, there are grey areas of advertising on the internet that the current laws and rules do not seem to have fully caught up to yet. See also 4.6 Native Advertising.

At this time, we have found no unique laws or regulations that specifically apply to the use of any of the major social media platforms, such as WeChat or Weibo. Meanwhile, major social media platforms in the PRC, such as WeChat or Weibo, have developed their own editorial and content guidelines to which the advertisers must comply on top of the existing laws, and advertisers need to adhere to the different verification procedures as required by the respective platforms.

Native advertising is a type of advertising that matches the form and function of the platform upon which it appears. Native advertising can take the form of in-feed ads, search and promoted listing, content recommendation, Weibo posts, WeChat articles and so forth. The reason for it being called “native” is that such advertising integrates with the original content of a website or app and is designed with a focus on user experience. As such, native advertising does not look like other advertising, but more like part of the overall website or app content.

However, despite being called “native”, if it is a marketing activity to promote a product or service, it should, at least in the view of certain government agencies, still be subject to the disclosure requirements as provided for in 4.4 Disclosures. As said, the Advertising Law and the Provisional Measures for Administration of Internet Advertising both require that advertising be clearly identifiable. In practice, however, due to the blurred lines between editorial and sponsored claims, native advertising is usually not marked with an “advertising” label as required by law. As such, in the event that native advertising infringes on consumers’ rights and interests or “interrupts the order of the advertising market”, its well-hidden form could bring more uncertainties as to how it should be regulated.

Since the Chinese e-commerce giant Taobao launched its live streaming business in 2016, influencer campaigns have become an established form of online advertising in the Chinese market. Popular types of influencers include celebrities, entrepreneurs or professional streaming hosts. In recent years, a growing number of brands have increased their influencer marketing budgets. Meanwhile, China’s rather unique social media landscape has led to an ecosystem for influencer campaigns, resulting in two main business models: social media advertising, as well as e-commerce retail advertising.

Social Media Advertising

The first model involves numerous popular social media platforms in China (WeChat, Weibo, TikTok, Bilibili, Little Red Book, Zhi Hu, etc), whereby the influencer posts promotional content for soft-sell advertising. Successful influencers rarely adopt overwhelming product descriptions or direct brand endorsement. Rather, they take more creative approaches to persuading their audience, such as sharing personal experience or offering competitive discounts. Usually, social media sites are not qualified e-commerce platforms, and consequently, brand owners need to co-operate with e-commerce platforms for the stimulated consumer to complete the purchase. For example, there may be a link in the webpage redirecting the consumer to the online retail store where an order may be placed.

E-commerce Advertising

In the second model, platforms (eg, Taobao Live Streaming, JD, Pinduoduo, etc) set up direct sales channels for various business owners to promote and sell their merchandise. In some circumstances, influencers who promote their own brand/products are the business owner themselves, such as Zhang Dayi and Li Ziqi. In some other circumstances, a business owner would hire an influencer to create a post or/and conduct a live stream to promote products online. If interested, the audience can complete the purchase within seconds, through clicking the product link shown at the bottom of the webpage or app page.

An influencer campaign that promotes a brand or product and influences the purchasing decision of a consumer would be viewed as advertising and, as such, be regulated by the Advertising Law, the Provisional Measures for Administration of Internet Advertising and other regulations applicable to online activities in general.

If an influencer campaign is carried in the form of live-streaming marketing, the relevant parties – including the platform, live-streaming operators, marketing personnel as well as the influencer – shall abide by recently promulgated rules including the Administrative Measures for Online Live-Streaming Marketing (for Trial Implementation) (May 2021), the Notice on Promulgation of the Guiding Opinions on Strengthening the Standardised Administration of Online Live-streaming (《关于加强网络直播规范管理工作的指导意见》, February 2021) and the Notice of National Radio and Television Administration on Strengthening the Administration of Live-Streaming Shows and E-commerce (《国家广播电视总局关于加强网络秀场直播和电商直播管理的通知》, November 2020).

Among the live-streaming marketing participants, live-streaming marketing platforms take primary responsibilities in connection with the marketing activities. Such responsibilities include going through filing formalities, obtaining necessary permits and approvals, and conducting security evaluation in accordance with applicable laws and regulations. In particular, platforms are required to:

  • train and maintain front-line reviewers to monitor the online streaming content;
  • categorise the live-streaming hosts and content of each live-streaming room; and
  • form a negative catalogue of goods and services that are prohibited from manufacturing, selling, on line trading or marketing, and those that are inappropriate for live-streaming promotion.

For themed e-commerce activities such as e-commerce festivals and promotional days in the form of live programmes, the platform shall file in advance for record with the competent authority for radio and television administration. If a celebrity or a foreign individual intends to open a live-streaming room, the platform shall also make a filing with the competent radio and television administration.

For live-streaming studio operators and marketing personnel, qualification review and real-name authentication are required. They shall perform the duties and obligations of advertisement publishers, advertisement agents or advertisement endorsers, as applicable, if the live-streaming content constitutes a commercial advertisement.

An advertiser’s liability under the Advertising Law for the content posted by its influencer is determined mainly by two factors: whether the influencer’s activity is advertising under the Advertising Law, and the relationship between the advertiser and the influencer. When advertising is deemed to have taken place, the influencer may be viewed as the advertising publisher where the influencer is presenting the advertising content, or as the endorser where the influencer personally certifies the product or service.

The Advertising Law imposes strict liability on the advertiser with respect to the truthfulness of the content of the advertisement. In a scenario where the influencer (being the advertising publisher or endorsement person) is conducting advertising activity, the advertiser would be held liable if the content posted by the influencer is deceptive or misleading.

Email marketing is regulated mainly under the Advertising Law, the Measures for the Administration of Internet Email Services (《互联网电子邮件服务管理办法》) and the Provisional Measures for Administration of Internet Advertising.

The Advertising Law provides that, electronic advertising shall clearly indicate the real identity and contact information of the sender, and provide to the recipient the means to unsubscribe. The Measures for the Administration of Internet Email Service provide that it is prohibited to send any email containing commercial advertising content without the recipient’s express consent, and that the word “advertisement” or “AD” shall be placed at the beginning of the subject line of emails containing commercial advertising contents. In addition, the Provisional Measures for Administration of Internet Advertising provide that, internet advertising shall be identifiable and clearly marked with the word “advertising” to be recognisable as a kind of advertisement to the public. 

Legal liabilities for violation of such rules include confiscation of illegal proceeds, rectification of wrongdoings, and a fine up to CNY100,000 as applicable.

Telemarketing is governed by the Advertising Law and certain other administrative rules. In 2018, the Ministry of Industry and Information Technology (MIIT) carried out a special action against unsolicited telemarketing calls. The Proposal for Special Action against Unsolicited Telemarketing Calls (《综合整治骚扰电话专项行动方案》) and the supporting Work Plan for Promoting the Special Action of the Comprehensive Rectification of Unsolicited Telemarketing Calls (《关于推进综合整治骚扰电话专项行动的工作方案》) provide that, so as not to interrupt the normal life of users, for commercial outbound telemarketing calls:

  • the consent of users shall be obtained;
  • a white list of users shall be established;
  • relevant materials shall be retained; and
  • the time and conduct of telemarketing calls shall be regulated.

In addition, local authorities also regulate telemarketing in the form of local regulations or administrative rules. In summary, the user’s consent is essential for permitted telemarketing, alongside other factors, including that the content of telemarketing must be lawful (eg, solicitation of gambling is strictly prohibited in any event). There are no express legal liability provisions under the relevant rules governing telemarketing, but the authority may apply the Advertising Law for illegal advertising activities and the Law on Protection of Rights and Interests of Consumers for infringement of consumers’ rights. In addition, in the event that telemarketing is associated with telephone scams, criminal liability may be imposed if that telemarketing serves as a means for fraudulent purposes.

Advertising by text messaging is mainly regulated by the Advertising Law, the Provisions on the Administration of Short Message Services Communications (《通信短信息服务管理规定》) issued by the MIIT, as well as the administrative regulations and rules promulgated by local governments.

In summary, the general requirements for SMS advertising are that:

  • the recipient shall be informed and have given consent, as commercial short messages can only be sent after informing the user of the type, frequency and time limit of such messages and obtaining consent of users;
  • the identity and contact information of the SMS content provider shall be included; and
  • a convenient and effective way to unsubscribe shall be provided along with the SMS.

Given that the Provisions on the Administration of Short Message Services Communications provide no specific liability provisions, the law enforcement body may rely on the Advertising Law to enforce the prohibition against illegal SMS advertising and the Law on Protection of Rights and Interests of Consumers for infringement of consumer rights.

Relevant regulatory requirements regarding the use of consumer data for purposes of targeting or retargeting consumers with advertising are found in the newly promulgated Personal Information Protection Law (PIPL, 《个人信息保护法》) which will come into effect in November 2021. The new law provides that, in the case of a targeted push and commercial marketing to individuals by means of automatic decision-making, the option to not be targeted by their characteristics (eg, the option to refuse tailored recommendation) or convenient opt-out options shall be provided at the same time.

In addition, the Law on the Protection of Consumer Rights and Interests provides that, in collecting and using the personal information of consumers, business operators shall:

  • observe the principles of legality, rationality and necessity;
  • explicitly state the purposes, methods and scope of collection or use of information; and
  • obtain the consent of consumers.

Moreover, business operators shall not send commercial information to consumers without the consent or request of consumers or after receiving a clear refusal from consumers. Violation of the Law on the Protection of Consumer Rights and Interests may result in warnings, confiscation of illegal proceeds, fines of up to ten times the illegal gains, and revocation of business licences.

Furthermore, the use of personal information by apps or software development kits (SDK) for targeted push has come to the attention of the authorities. On 22 July 2020, the MIIT issued the Circular concerning the Carrying-Forward of Special Tasks on the Remediation of APP Infringing User Rights (《工业和信息化部关于开展纵深推进APP侵害用户权益专项整治行动的通知》), emphasising that the providers of apps and SDKs must follow the regulations in the collection and use of personal information, as well as in sending targeted advertising.

As for self-regulation, a nationwide industry standard Personal Information Security Specification (《个人信息安全规范》) provides for restrictions on the use of personal information. It provides that, in using personal information, clear identity directionality shall be eliminated to avoid identifying any individuals directly, unless otherwise necessary for the realisation of the purpose of the use approved by the subject of personal information upon authorisation. For example, direct user portraits may be used to evaluate personal credit status, while indirect user portraits may be used for pushing commercial advertising.

The Advertising Law introduced a set of restrictions on advertising that targets minors under the age of 18, as well as certain additional restrictions on advertising targeting minors under the age of 14. In connection with minors under the age of 18, the following restrictions apply:

  • tobacco ads are prohibited;
  • no advertising activity shall be conducted in kindergarten, primary and middle schools, as well as on textbooks, school uniforms, stationery, etc; and
  • no adverts for medicine, drugs, cosmetics, etc targeting minors shall be published in mass media.

In connection with minors under the age of 14, the advertisement shall not contain:

  • any inducement for the minors to ask parents to purchase the advertised goods or services; or
  • any unsafe activity that may cause imitation by minors.

If an advertiser violates the Advertising Law by sending advertisements to minors, the advertiser may be subject to sanctions including recall of illegal advertisements, fines, non-approval of future advertisements in a one-year term, confiscation, revocation of business licence, etc.

Collection of personal information of minors is covered by the newly promulgated PIPL and is also regulated by the Provisions on the Cyberspace Protection of Children’s Personal Information (《儿童个人信息网络保护规定》). The Provisions provide detail regarding the network operator’s obligations in connection with the handling of the personal information of minors (ie, those under the age of 14). Personal information of minors is categorised as, among other things, a kind of “sensitive personal information” under the PIPL. As such, in addition to heightened requirements regarding the collection and processing of sensitive personal information, consent from the minor's parents or other guardians shall also be needed and separate processing rules shall be made specifically for processing minors’ personal information.

Violation of the Cyberspace Protection of Children’s Personal Information may result in, among other things, confiscation of illegal turnover and relevant fines, a fine of up to CNY1 million if there is no illegal income, and shutdown of the website in question. In addition, if such action violates the PIPL, heavier penalties, such as a fine of no more than CNY50 million or 5% of the perpetrator’s business income from the previous year, may be triggered.

“Sweepstakes” does not have a corresponding legal meaning under existing Chinese laws. As such, there are no specific rules governing sweepstakes as marketing activities, and there is no statutory guidance as to whether it is permitted to require consumers to make a purchase in order to participate. That said, sweepstakes can be loosely interpreted as prize-attached sales, which are subject to certain rules and may trigger different legal issues. According to the Interim Provisions for Regulating Promotional Activities (《规范促销行为暂行规定》), which came into effect in November 2020, prize-attached sales refer to the activities of business operators to provide consumers with prizes, articles or other benefits for the purpose of selling commodities or obtaining competitive advantages, including prize-attached sales in form of lucky draws, gift giving and the like.

Anti-Unfair Competition Law

Laws and regulations such as the Anti-Unfair Competition Law and the Certain Regulations on Prohibiting Unfair Competition in Prize-Attached Sales (《关于禁止有奖销售活动中不正当竞争行为的若干规定》) promulgated by the SAIC impose regulations on prize-attached sales. The regulatory focus includes unclear information on prize-attached sales, internally determined prizes, rigged winning results, inferior products with high prices, and the amount of the highest prize exceeding the statutory limit.

Lottery Management Regulations

If any person issues lottery tickets in the guise of prize-attached sales in order to seek profits, and to earn the price difference from the sale of commodities by setting prices much higher than the actual commodities under the lure of large prizes, this act shall be deemed illegal and may even constitute a crime. According to the Lottery Management Regulations (《彩票管理条例》), where anyone violates these regulations by illegally issuing or selling lottery tickets, or issuing or selling foreign lottery tickets within the territory of the PRC, they may be subject to criminal liability if a crime is constituted; where no crime is constituted, they may be subject to a public security penalty by the public security bureau; where there are illegal proceeds, such illegal proceeds shall be forfeited.

Advertising Rules

If sweepstakes are used as marketing promotions to reward consumers and to draw attention to products or services, then they shall be subject to all advertising law requirements as a form of advertising campaign.

The existing Chinese law has not defined what constitutes a “contest of skill” or a “game of chance”, nor does it provide for a distinction between them. Gambling disguised as a contest of skill or game of chance is strictly prohibited, yet the law has not provided the criteria to distinguish contests of skill and games of chance (as forms of marketing activity) from those regarded as prohibited gambling.

As “contests of skill” and “games of chance” are not defined legal terms, they are, in principle, subject to particular registration or approval requirements only if the concrete activity falls into the scope of defined activities for which such requirements exist. For example, if the contests or games constitute sports competitions, including e-sports and board and card games, they are regulated by the sports administrative department under the State Council, national associations and local people’s governments in accordance with the Sports Law (《体育法》). Under the sports rules, the filing of sport projects shall be submitted to the General Administration of Sports by the Sports Project Management Centre. The filing is either for approval or just for the record, based on the specific type of the project. For instance, Olympic sports and “an event” of non-Olympic sports are treated differently in terms of approval requirement. The General Administration of Sports reviews the application according to the Measures for the Administration of Sports Project Approval (《体育运动项目立项管理办法》) and makes public notice after approval.

There are no special laws or regulations for loyalty programmes. Similarly, the term “loyalty programme” does not have a corresponding legal definition under the existing Chinese law, despite the fact that such programmes are often seen in daily life. A typical “point-based” loyalty programme involves a business setting up an account for a customer and offering points for each purchase, the accumulated points may be redeemed for discounts or gifts from the business or connected stores. The lack of special laws or rules specifically for loyalty programmes does not mean that they are not regulated. There are rules to be borne in mind if a business owner intends to launch a loyalty programme, including the following.

  • If the loyalty points are deemed as virtual currency for online games, specific rules would apply, including the Provisional Measures for the Administration of Online Games, Notice of the Ministry of Culture on Strengthening the In-process and Ex Post Regulation of the Operations of Online Games(《文化部关于规范网络游戏运营加强事中事后监管工作的通知》, Notice on Regulating the Operation Order of Online Games and Prohibiting the Use of Online Game Gambling (《关于规范网络游戏经营秩序查禁利用网络游戏赌博的通知》).
  • Loyalty programmes may not be used as a disguised commercial bribe; for instance, when a manufacturer gives away loyalty points with substantial redeemable value to retailers so as to induce the retailer into placing more orders, this kind of loyalty programme may trigger concerns for potential commercial bribery.
  • When a loyalty programme involves pre-paid membership, the business owner shall observe relevant rules such as the Administrative Measures for Single-Purpose Commercial Prepaid Cards (for Trial Implementation) (2016 Amendment) (《单用途商业预付卡管理办法(试行)》 2016).

Generally speaking, the Chinese Anti-Monopoly Law prohibits operators in the market that have a dominant position from selling commodities at a price below cost. In addition, the Price Law forbids dumping sales for the purpose of crowing out competitors and dominating the market, or implementing hidden price decrease by way of increasing the grade of merchandises or services. A marketer’s offer of free or reduced-price products or services is not illegal per se but regulators may, in certain circumstances, deem such activities as unfair methods to gain advantages over competitors and impose rectification proactively. The Interim Provisions for Regulating Promotional Activities require business operators, among other things, to clearly indicate the benchmark for discount or price reduction, the conditions attached to the discount, and the time period for the promotion.

According to the Measures for the Supervision and Administration of Online Transactions (《网络交易监督管理办法》, effective on 1 May 2021), online transaction operators shall notify the users in a prominent manner upon a user accepting relevant services as well as five days prior to the date of automatic renewal and allow users to make a choice. During the service period, operators shall also provide convenient and instant opt-out or change options without charging unreasonable fees. Furthermore, according to the E-Commerce Law (《电子商务法》), e-commerce platforms shall not turn on automatic subscription and renewal options for consumers by default. If an automatic renewal is triggered, it shall be brought to consumers’ attention in a conspicuous way.

Under the PRC regulatory framework, betting and gambling activities, including those related to sports, are generally prohibited. Where there is a violation, the threshold for administrative liability could be as low as, for organisers, accumulating a profit of CNY300 and, for participants, personal gambling of amounts of CNY200, under different enforcement rules promulgated by local provincial authorities. Criminal liabilities may be incurred if one engages in activities of gathering people to gamble for profit, engaging in gambling as one’s profession, operating casinos, or organising PRC citizens to participate in gambling outside China involving large amounts.

According to the Advertising Law, advertisement is prohibited from including gambling content. For the avoidance of doubt, the China Sports Lottery issued by the General Administration of Sports and the China Welfare Lottery issued by the Ministry of Civil Affairs, shall not constitute “gambling”. Advertisements for such lottery tickets are managed by their respective issuer authority and supervised by the PRC Ministry of Finance and the SAMR.

A cryptocurrency, often interchangeable with “virtual currency”, such as Bitcoin or Ethereum, is generally understood as a digital or virtual currency whose tokens or "coins" are mutually interchangeable with each other and secured by cryptography, making them nearly impossible to counterfeit and potentially functional as a universal equivalent for transactions.

NFTs (non-fungible tokens), though based on blockchain technology as well, are generally understood to be different from cryptocurrency, as each NFT is unique from and not interchangeable with other NFTs. Thus, NFTs cannot work as an intermediary in transactions as cryptocurrencies potentially do. By contrast, NFTs can be used to authenticate the ownership of digital assets.

To date, there has been no official definition of cryptocurrency or NFT at the legislative level in China, although regulatory notices and risk alerts issued by relevant authorities such as the People’s Bank of China, the SAMR, the China Banking and Insurance Regulatory Commission, etc, expressly provide that cryptocurrency is by nature a virtual commodity instead of a kind of currency in China. The regulation focuses on the issuance and trading of cryptocurrency which will be deemed an illegal financial activity under the current regulatory framework. Relevant regulations emphasise upholding the renminbi as the statutory currency, and cracking down on illegal financial activities of illegal fundraising (such as initial coin offerings), financial fraud, pyramid schemes and money laundering through cryptocurrency. Regarding the advertising of cryptocurrency, in July 2021, the Operation Management Department of the People’s Bank of China and Beijing Local Financial Supervision and Administration issued a risk reminder prohibiting entities from providing commercial display and marketing publicity for, among other things, virtual currency-related business activities. In September 2021, this prohibition was further stressed in a notice issued by high level authorities including, among others, the People’s Bank of China, the Office of the Central Cyberspace Affairs Commission and the Supreme People's Court. So far, there do not seem to be specific rules governing NFT activities or the advertising thereof.

Haiwen & Partners

20/F, Fortune Financial Center
5 Dong San Huan Central Road
Chaoyang District
Beijing
100020
P. R. China

+86 10 8560 6888

+86 10 8560 6999

caoyu@haiwen-law.com www.haiwen-law.com
Author Business Card

Trends and Developments


Authors



Haiwen & Partners was founded in May 1992 and is one of the leading general practice law firms in the People's Republic of China, with around 200 lawyers in total working in its Beijing, Chengdu, Hong Kong, Shanghai and Shenzhen offices. The firm started its pioneering entertainment and media law practice more than a decade ago, involving a wide variety of practice areas in the entertainment industries, including the development, production, and distribution of film and television projects; large theme park projects; recording and music publishing; live concerts; literary publishing; advertising; and new media matters. The firm’s clients include major film studios, leading investment companies, as well as top talent, producers and directors, both in and outside China. Combined with its strong practice in the capital markets and M&A areas, Haiwen also provides extensive legal services to clients conducting IPOs, M&A, and other general corporate finance transactions in the entertainment industries.

Overview

For the past 12 months, we have seen heightened regulatory efforts in the advertising industry. On one hand, the increased regulatory efforts are a result of market developments: as the level of innovation and sophistication of advertising and marketing practices increases, especially in the internet space, the Chinese government has seen the need to strengthen regulation. On the other hand, we have seen a rather special political environment for the past year or so: 2021 saw the 100th anniversary of the founding of the Communist Party of China. In the wake of the celebration and relevant activities, the government has put a great deal of emphasis on social stability. Economic activities, including those in the advertising sector that tend to affect the well-being of the general population, and consequently social stability, have caught the close attention of the government. The 20th Party Congress will be held in the autumn of 2022. Social stability, which is a key motive for closer monitoring by the regulatory authorities for the advertising industry and beyond, will remain a top priority of the government.

In addition, while the COVID-19 pandemic in China has already been very much put under control, the danger of imported cases and new cases still lingers. The prevention and control of the COVID-19 situation also remains a priority of the government, which is particularly important in light of the upcoming Winter Olympics in Beijing.

Directional Guidance in Connection with the 100th Anniversary of the Communist Party of China

The government issued notices and reminders to market participants stressing the importance of the “correct political orientation” of advertising activities. Market participants are required to strengthen self-screening of advertising content. The government has focused on cracking down on content that damages the image of the Party and the State, that hurts the feelings of ethnic minorities, or that contradicts ethical and moral principles. Local governments published circulars setting forth guidelines that were aimed at pre-empting adverts and marketing content that would be viewed as politically or otherwise problematic. Such guidelines can go into considerable detail. For example, the circular published by the Hubei Provincial Administration of Market Regulation (AMR) in March 2021 enumerated as many as 15 categories of activities that were considered problematic. Such categories included, among others:

  • the use, for “publicity stunt” purposes, of the Party’s flag or emblem, or the logos of major celebration events, or the publicity report for the celebrations, or the speeches made by Party leaders;
  • the use or disguised use of the national flag, the national emblem, the national anthem, or the flag, emblem, or theme song of the armed force (the People’s Liberation Army);
  • inappropriate descriptions of products, such as “specially supplied for State Banquets”;
  • the use or disguised use of the names or likeness of recognised heroes or martyrs.

While the examples above are quite specific, the categories also included general prohibitions. For example, in the same circular, it was stated that adverts that hinder social stability or damage public interests are strictly prohibited. Throughout the circulars, one can clearly see the theme of maintaining social stability.

Given the importance of the upcoming 20th Party Congress in the autumn of 2022, the prohibitions as reflected in the above-mentioned circulars are expected to remain a top priority of the government for the coming 12 months and beyond.

Adverts for Subject-Based Off-Campus Training

In the summer of 2021, the central government published a notice calling for a reduction in the burden of homework and subject-based off-campus training for students in compulsory education, which is nine years including elementary school and middle school.

“Subject-based off-campus training” means those classes in after-school hours on the compulsory subjects at school, including maths, English, Chinese, and certain others. As a popular practice, parents send their children to such classes to gain knowledge in the respective subjects that goes beyond what the school textbooks and government educational guidelines require. The purpose is mainly to gain a competitive edge in exams by securing high scores or winning awards in competitions in those subjects. Demand for such training has spurred and supported a whole industry of such training classes, both online and offline. The government has determined that such training has unduly burdened students and parents alike. As such, the government launched a campaign to reduce such training classes, including for a few months wiping out substantially all such training classes on an almost nation-wide basis. 

As part of the intensified efforts to reduce the burden on students, the government targeted adverts for such subject-based off-campus training. The above-mentioned notice requires, among other things, that:

  • no such adverts may be posted on traditional mainstream media, new media, public venues, billboards in residential communities, or internet platforms;
  • adverts that exaggerate the effect of training, mislead educational notions of the public, or create anxiety among parents must be disciplined;
  • no commercial advertising activities may be conducted on the campus of elementary schools, middle schools, or kindergartens; and
  • no adverts may be published in disguised forms by using textbooks, supporting materials, utensils, uniforms, school buses, etc.

As the above-mentioned notice was implemented by the government, the subject-based off-campus training business sustained a major blow. Reportedly, listed companies in those areas lost market value in the amount of billions of US dollars.

Celebrity Endorsement

As the government has heightened its supervision and discipline of celebrity-endorsed adverts, businesses have been more cautious of the risks associated with celebrity endorsement due to the so-called “off-screen conduct” of such celebrities, which has already resulted in more draconian contractual provisions for the celebrities generally.

Heightened government supervision of endorsement of financial products

Among others, the China Banking and Insurance Regulatory Commission (CBIRC) issued a “risk reminder” in April 2021, specifically reminding the public of the risks associated with the endorsement of financial products by celebrities. With the huge internet-using population in China, financial products including asset management products have an exceptionally wide base. Institutions creating and selling financial products have had celebrities endorse or otherwise promote their products. In the eyes of the government, problems exist in such activities, including, for example, exaggerated publicity, misleading publicity, claims of high returns, etc, which have severely violated the interests of the customers.

As such, the risk reminder calls for the public to clearly understand the risks associated with celebrity endorsements. In particular, it points out that given the complexity of financial products, if the endorsing individual does not have the ability to identify the qualifications of the products in question, or to understand the inherent risks in such products, then the risk of misleading publicity may arise.

The notice enumerated the typical types of endorsement/promotion by celebrities – eg, endorsement/promotion for P2P platforms, for products that are suspected of illegal aggregation of funds, for internet financial platforms, and for brands of banks and insurance companies. Over the past few years, there have been disastrous incidents involving financial products endorsed by celebrities. One example identified in the notice involves illegal aggregation of funds that caused damages to more than 10,000 investors.

The risk reminder took pains to educate potential investors to prudently examine financial products with celebrity endorsements. It suggests that the investor look at, among others, whether the issuing institution has obtained the necessary qualifications, whether the products conform to the needs and risk-bearing capacity of the investor themselves, and whether the return would be reasonable (instead of exceptionally high).

The risk reminder also placed requirements on the institutions providing financial products as well as on the celebrities endorsing financial products. Specifically, the risk reminder reiterated the requirements under the Advertising Law that an endorser may not provide recommendations for products or services that the endorser has not personally used or accepted, or provide recommendations knowing (or where they should know) that the adverts are false or misleading. It repeated the requirement that the celebrities should verify the qualifications of the institution being endorsed, whether the products/services are genuine, and in general whether they conform to regulatory requirements.

Regulators in the financial sector emphasised that celebrities should be held liable if they fail to fulfil their due diligence obligations. Among others, a vice chairman of the China Banking and Insurance Regulatory Commission (CBRIC) stated at a press conference in June 2021 that liable celebrities must disgorge their endorsement/advert compensations.

The key lesson, both in and outside the financial sector, for the celebrities is that they must perform due diligence on the brands/products requesting their endorsement. Given the complexity of financial products in general, some celebrities may deliberately avoid endorsing brands/products in the financial sector. Prudent celebrities will have their team perform due diligence on the brands/products. Such due diligence can actually be quite extensive. Advisors to celebrities may propose to examine a full set of permits, licences, and registrations for qualification for eligibility purposes. The celebrity’s team may even request to conduct on-site due diligence at the venue of the brand. Such precautions are not surprising given the increased liabilities and potentially severe consequences on the celebrity’s side. Overall, the practice involving the allocation of liabilities and responsibilities has become more sophisticated and complicated, which is partially reflected in the contracts between the celebrity and the brand.

Caution of businesses engaging celebrities for endorsements

Over the past 12 months, the government has launched campaigns to allegedly “sanitise” the entertainment sector by, among other things, denouncing talents who are considered by the government as having taken seriously wrong political stances, or who have committed severe moral wrong-doings, etc. Multiple talents, including once top stars, have been disciplined and sanctioned. Among others, the talents that have been sanctioned and/or boycotted include those:

  • reported to support the independence of Taiwan;
  • who have been worshiping at the Yasukuni Shrine in Japan where Class A World War II war criminals (convicted of having been involved in the planning, preparation, initiation, or waging of the war) are enshrined;
  • suspected of crimes involving drugs; or
  • accused of abandoning babies carried by a surrogate mother, etc.

This July also saw the criminal detention of a top idol over a rape allegation.

Obviously, no business wants to be trapped in a situation where its endorsing celebrity gets punished for committing negative off-screen conduct. As a result, contractual language protecting the brands from the talent’s off-screen conduct can end up being very complicated and is heavily negotiated. Some contractual provisions are structured extremely broadly, with a low threshold to trigger the brand’s right to terminate, a severe package of damages, and a very long term for that provision to bind the talents, sometimes in perpetuity. Also, prudent brands will use all possible methods to conduct due diligence to find out more about the talent, ranging from political orientation, private life, company information of businesses that the talent has invested in, to sanctions lists in and outside the PRC, etc. In 2021, there have been dozens of termination announcements released by major brands as a result of their respective endorser’s alleged inappropriate “off-screen” conducts.

Cosmetology Adverts

While the government has been sensitive about cosmetology and medical adverts, one major regulatory update this year is that cosmetology adverts have officially been pronounced a sub-category of medical adverts, subjecting cosmetology adverts to the regulatory system for medical adverts.

Consequently, unless the cosmetology clinic in question has been certified as a medical institution, it will not be allowed to publish adverts for its cosmetology businesses. In order to publish medical adverts, the advert in question must first obtain a Medical Advertisement Censorship Certificate. In the absence of such certificate/approval, no medical adverts may be issued. It is also prohibited for any medical adverts to be published disguised as a news report, medical information service column, or as popular science health knowledge, etc.

Notably, the authorities rolled out the draft Guidelines on the Enforcement of Law on Cosmetology Advertisements in August 2021 (the Guidelines). The Guidelines, targeting specifically the cosmetology business, are at the stage of seeking public comments. In the draft Guidelines, emphasis is proposed to be given to those problems that are severe in their degree of harmfulness and that are complained about strongly by the public, including, for example, cosmetology adverts that create “anxiety over appearance”, or are published in violation of medical advert approval or filing requirements, or using the names or images of patients to compare the effects before and after treatment, or are published by non-medical cosmetology institutions, etc.

Live-Streaming Rooms and Pop-up Adverts in Apps

Forms of internet advertising have continued to develop as the variety of business activities continue to grow. During the past 12 months, the government has rolled out multiple laws and rules (official and draft) addressing issues arising from new forms of internet-based businesses. Notable developments include those in the areas of e-commerce via live-streaming, regulation of pop-up adverts, and in the protection of personal information.

Live-streaming e-commerce

The government has beefed up requirements on the censorship front with respect to e-commerce through live-streaming. For live-streaming e-commerce platforms, it is required in the new regulation that the supervising personnel regularly performing screening obligations shall match proportionately the number of live-streaming rooms. The minimum ratio of censorship personnel vis-à-vis live-streaming rooms must be no less than 1:50. The live-streaming platforms must register each user’s real name if the user wants to tip the host. There are more concrete rules relating to the tipping practice in order to, among other things, prevent minors from tipping live-streaming hosts. The result is that only adults with their real names registered may tip the internet hosts/internet stars. In addition, all companies and individuals selling products on live-streaming platforms must register their real names, and the platforms are required to conduct a background check of such companies and individuals. The government has been pro-actively enforcing the laws and rules as well, including a crackdown on false reporting of live-streaming room turnover, sale of fake goods, exaggerated publicity, etc.

Pop-up adverts in apps

The Ministry of Industry and Information Technology (MIIT) launched a campaign in mid-2021 aimed at countering the pop-up window problems with apps in general, as the government considers that the wide-spread and highly frequent pop-up adverts impose a major inconvenience to website and app users. Through the said campaign, the government urges internet platforms to deal with problems including excessive pop-up adverts, deceitful redirecting links disguised as words, images or videos, etc. Reportedly, for the second quarter of 2021, customer complaints about pop-up adverts decreased by 50% on a month-on-month basis, and complaints about redirecting to third-party pages decreased by 80%.

Personal Information Protection

The newly promulgated Personal Information Protection Law will take effect on 1 November 2021. This covers multiple aspects of the collection and use of personal information. It is the first law dedicated on personal information protection in China. The strengthened protection as a result of this new law should result in the heightened regulation of targeted push adverts. Specifically, automated decision-making will be required to be transparent, and ensure the equality and fairness of the results. The law explicitly requires, among other things, that where an information push or commercial marketing is found through automated decision-making, the targeted individual must be provided with options that are not tailored towards their personal characteristics, or be provided with a convenient way to opt-out of such targeted pushes and marketing reach.

The government is also in the process of promulgating rules regulating algorithm-based recommendations. A draft regulation is currently soliciting public comments. According to the draft regulation, no one may use an algorithm to interfere with the display of information, manipulate industry rankings, or manipulate internet traffic, etc.

Cryptocurrency and NFTs

A cryptocurrency is generally understood to be a form of digital currency or asset based on blockchain technology, such as Bitcoin or Ethereum. Individuals in China are not prohibited from holding cryptocurrencies. However, since 2013, authorities have increasingly intensified regulations on cryptocurrencies as a part of long-term and multi-agency efforts to stem speculation and illegal fundraising in the financial markets, as well as to clamp down on criminal activities such as money laundering and illegal cross-border fund transmission facilitated by the anonymity and decentralised nature of cryptocurrencies.

So far, the regulations have stressed the upholding of the renminbi as the only lawful currency in China. The regulations focus on the issuance and trading of cryptocurrencies, which will constitute illegal financial activities under the current regulatory framework. Specifically, token fundraising activities, including initial coin offerings (ICOs), among other things, are viewed as illegal public financing activities and expressly prohibited in China. In May 2021, three government-backed industry associations – ie, the National Internet Finance Association of China, the China Banking Association and the Payment & Clearing Association of China – issued a joint announcement banning financial and payment institutions from directly or indirectly providing services related to cryptocurrency trading and warning the public against the potential criminal nature and liabilities related to illegal fundraising, illegal securities offerings, and the like disguised with the use of cryptocurrency.

From the perspective of advertising, the Regulation on the Prevention and Disposition of Illegal Fundraising promulgated by the State Council, effective from May 2021 provides that unless otherwise provided by the State, no entity or individual may release any advert containing fundraising content or carry out fundraising publicity aimed at the public in any other form. Specifically for cryptocurrencies, in July 2021, the Operation Management Department of the People’s Bank of China and Beijing Local Financial Supervision and Administration issued a risk reminder announcing the shutdown and deregistration of a company providing software services for virtual currencies (a synonym more often used than “cryptocurrency” in the PRC regulatory context) and reiterating the prohibition of providing business premises, showcasing, promotion and advertising, etc, for activities related to virtual currencies.

This year we have also seen the booming development of NFTs (non-fungible tokens). So far, the market has tended to interpret it as a blockchain-based digital certification technology that authenticates the ownership of digital assets, rather than a cryptocurrency. There are currently no express rules regarding NFT activities or the advertising thereof under the PRC law.

Gender Equality

Amid the rising public awareness of issues of gender equality and wider public discussion on combating sexism, adverts are coming under increasing scrutiny from the perspective of gender equality this year. In December 2020, the first official guidebook on gender equality in adverts was released by the local government of Shenzhen, a major metropolis in southern China. The guidebook aims to identify and prevent gender discrimination in advertising practices.

It mainly applies to commercial adverts, public service adverts and other content spread through different channels. It provides, without limitation, the criteria for identifying gender discrimination in adverts, the review procedure, the responsibilities of competent authorities, and complaints and reporting channels. Though non-mandatory and only applicable in Shenzhen, it showcases a trend in advertising regulation in the PRC towards greater gender equality.

Haiwen & Partners

20/F, Fortune Financial Center
5 Dong San Huan Central Road
Chaoyang District
Beijing
100020
P. R. China

+86 10 8560 6888

+86 10 8560 6999

caoyu@haiwen-law.com www.haiwen-law.com
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Law and Practice

Authors



Haiwen & Partners was founded in May 1992 and is one of the leading general practice law firms in the People's Republic of China, with around 200 lawyers in total working in its Beijing, Chengdu, Hong Kong, Shanghai and Shenzhen offices. The firm started its pioneering entertainment and media law practice more than a decade ago, involving a wide variety of practice areas in the entertainment industries, including the development, production, and distribution of film and television projects; large theme park projects; recording and music publishing; live concerts; literary publishing; advertising; and new media matters. The firm’s clients include major film studios, leading investment companies, as well as top talent, producers and directors, both in and outside China. Combined with its strong practice in the capital markets and M&A areas, Haiwen also provides extensive legal services to clients conducting IPOs, M&A, and other general corporate finance transactions in the entertainment industries.

Trends and Development

Authors



Haiwen & Partners was founded in May 1992 and is one of the leading general practice law firms in the People's Republic of China, with around 200 lawyers in total working in its Beijing, Chengdu, Hong Kong, Shanghai and Shenzhen offices. The firm started its pioneering entertainment and media law practice more than a decade ago, involving a wide variety of practice areas in the entertainment industries, including the development, production, and distribution of film and television projects; large theme park projects; recording and music publishing; live concerts; literary publishing; advertising; and new media matters. The firm’s clients include major film studios, leading investment companies, as well as top talent, producers and directors, both in and outside China. Combined with its strong practice in the capital markets and M&A areas, Haiwen also provides extensive legal services to clients conducting IPOs, M&A, and other general corporate finance transactions in the entertainment industries.

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