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LEGAL:China's New Advertising Law poses a stricter regulation on advertising activities in China
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China's New Advertising Law poses a stricter regulation on advertising activities in China

By Manuel Torres & Grace Ge

BT 201602 110 43 Finance 002The Advertising Law of the People's Republic of China was revised and amended for the first time after two decades since being enacted in 1995 (the "New Advertising Law"), and came into force on September 1st, 2015. The New Advertising Law presents a tougher stance towards advertising in China.


Compared to the original one, the New Advertising Law is amended to a significant extent. The length of the New Advertising law has been expanded from 49 articles to 75 articles with 33 articles being newly added, three being deleted, and 37 being revised. The following key amendments are worth noting for those who want carry out advertising activities in China.


Restriction on the use of superlatives


Both the old and new Advertising Laws prohibit using superlatives to describe products or services in advertisements. But the New Advertising Law has posed a harsher penalty towards the failure of compliance to this stipulation. Failure to comply could make advertisers, advertisement agents and advertisement publishers face potential fines up to one million CNY (circa 140,700 EURO).


Although Article 9 of the New Advertising Law only lists three superlatives which are "national-level", "the best", and "the highest-grade", phrases forbidden under this article are not limited to these. Companies should also be cautious when using other similar wordings. State Administration for Industry and Commerce of the PRC ("SAIC") used to regard "top-level" and "the first" as superlatives with the meaning of Article 9 in individual cases.


However, this stipulation does not ban the usage of any superlative in advertisements. Using superlatives to describe products or services is prohibited in advertisements as such promotion is prone to cause consumers' misunderstanding and disparage other products or services of the same kind unfairly. This is why misuse of superlatives that cannot be testified could also be regarded as false advertising. By contrast, if the comparison is made between the products or services of the same brand owner, it is legitimate to use superlatives to describe objective and authentic situations.


Stringent controls over the advertising of specific products and services


The New Advertising Law not only places tighter controls over products or services used to be listed in Chapter 2 -- such as pharmaceuticals, medical devices, health foods, alcohol, tobacco -- but also introduces regulation over advertisements of several new classes of products or services, like breast milk substitutes, educational and financial services. Here are some examples:


In relation to advertisements of alcohol, induction and instigation of drinking, expression or implication that drinking can relieve stress and anxiety or improve physical strength are all prohibited. Furthermore, actors in alcohol advertisements shall not conduct any act of drinking or indicate that they are driving vehicles, steering ships or planes.


In relation to breast milk substitutes, advertisements that claim baby formula, beverages or other food can fully or partially substitute breast milk are strictly prohibited in mass media or public places.


In relation to educational services, explicit or implicational guarantees of passing examinations, acquiring degrees or qualification certificates, or obtaining certain results after training or education cannot be made in advertisements. Moreover, such advertisements cannot attract clients by claiming relevant educational organizations, its staff or test-designers have participated in the education or training. With respect to this special class of service, endorsement is also restricted. Research institutes, academic institutes, educational institutes, industry associations, professionals and beneficiaries are not allowed to endorse or testify educational and training service.



New controls over advertising to children


BT 201602 110 42 Finance 001Another change of the New Advertising Law is that it perfects the regulation of certain advertisements to protect the physical and mental health of children. Instead of vaguely addressing that advertisements should not be a detriment to children, the New Law Advertising regulates advertisement to children from several aspects.


First, to provide a good environment for children's growth, advertising activities cannot be conducted in schools or kindergartens. Advertisements are forbidden to be presented in textbooks, teaching materials, uniforms, school buses or other similar places. Second, children under the age of 10 cannot endorse products or services. To clarify, this stipulation only bans children under 10 endorsing services or products by using their name or image, but not prevent actors under 10 appearing in any advertisement. Third, advertisements of medical, health-care food, pharmaceuticals, cosmetics, alcohol and online games cannot be distributed on mass media that target children. Moreover, advertisements targeting children could not contain content that induce children to persuade their parents to buy the products or services being advertised or cause children to imitate dangerous acts.


Stricter rules over product endorsement


Inviting celebrities -- such as famous football players -- to endorse or recommend products or services is a common method for promotion. Compared to the old Advertising Law, the new one includes the endorser as one of the subjects of advertising activities and further clarifies its rights and liabilities in advertising activities.


Subject to the New Advertising Law, endorsements mean that natural persons, legal persons or other organizations use their own names or images to endorse or testify products or services. Interestingly, the situation where the endorser is a celebrity may be slightly different from that where the endorser is an ordinary person. If an ordinary person participated in an advertisement only to act as required by the screenplay -- rather than to use his/her name or image to endorse the products or services being advertised -- this person should be regarded as an actor. On the contrary, if a celebrity appeared in an advertisement and can be recognized by the public, generally he or she will be treated as an endorser regardless of his/her real intention.


Moreover, as stipulated in the New Advertising Law, endorsers are required to use the endorsed products or services in person when providing endorsements. In addition, not all fields are open for endorsement. Endorsements for medical, pharmaceuticals, medical devices, health-care foods and tobacco are now strictly prohibited. Another major change in relation to endorsements is that celebrities and other endorsers may be held jointly liable with advertisers, advertisement agents and advertisement publishers for damages to consumers caused by false advertising. And such endorsers will be banned from further endorsement for three years.


Therefore, clarifying issues about the liability in the endorsement contract before any actual advertising activities could be a better and more secure choice for both advertisers and endorsers.


New regulation over advertisements on the Internet


With the rapid development of the Internet, advertising on this medium had posed great challenges to the old Advertising Law. Therefore the New Advertising Law includes advertising activities on the Internet into the regulation regime.


According to the New Advertising Law, sending advertisements by electronic means should be subject to the prior consent of the receiver. And the identities, the contact details of the senders as well as a method of unsubscribing should be provided to the receivers when sending advertisements by electronic methods. The New Advertising Law further requires pop–up advertisements must be capable of being closed in one click. Online advertisements should not interfere with the user's regular use of the Internet. Additionally, the New Advertising Law demands that Internet Service Providers cease illegal advertisement on their platform if they know or should know.


Obviously, three articles are not enough to cover various situations of advertising activities on the Internet. The Interim Measures for Internet Advertising Supervision and Management (Draft for Comments), a detailed regulation towards online advertising, was released by the SAIC to solicit comments from the pubic by 31st July, 2015. We suggest due attention should be paid to this regulation in the future.

BT 201602 110 44 Finance 003
Stricter measures to deal with false advertisement


Consumer protection is one of the significant targets of the New Advertising Law. In addition to other measures, the new law seems to aim at rooting out false advertising that's intended to cheat and mislead consumers in China. Except for providing a general definition about false advertisement, the New Advertising Law also lists four typical types of false advertisements which are open-ended. The four specific false advertisements are:

- Advertisements for non-existing products or services
- In respect of the nature, function, origin, usage, quality, specification, indigents, price, manufacturer, validity period, performance and awards of products or services, the allegations do not match to the actual situation and result in substantive influence on consumers' purchase decision
- Using scientific research results, statistics, surveys, articles that are falsified, apocryphal or unverified to serve as evidential materials
- Fabricating the effect of using the product or service


Apart from carrying out harsher penalties towards false advertising, which will be addressed in detail in the next part, Article 54 of the New Advertising Law empowers the Consumers' Association to monitor activities of false advertising. The combination of a general definition and precise situations gives more certainty to determine what constitutes a false advisement and improves the operability of legal enforcement.


Harsher penalties and wide-ranging sanctions


According to Article 2 of the New Advertising Law, all commercial advertising activities carried out via media or other forms in the territory of the People's Republic of China that aim at promoting certain products or services should be governed by the Chinese advertising law. Therefore, no matter if the advertisers are domestic or foreign companies, as long as the advertising activities are conducted in China, the consequences of breaching the Chinese Advertising Law shall be considered.


Compared to the old advertising law, it is obvious that not only the scope of sanctions is widened, but also the fines for breaching the law are much heavier. For example, if constituted a false advertisement, the advertisers may face a fine not less than three times (originally it was double) and not more than five times the advertising fee, and where the original fees are hard to be calculated or are significantly low, the advertisers could be imposed a fine as high as two million RMB (circa 280, 400 EURO).


As mentioned above, the methods of sanctions under the New Advertising Law are now widened. Except for heavier administrative fines, the violations of the New Advertising Law could also make advertisers, advertisement agents and advertisement publishers face sanctions like the revocation of their business license, and civil or even criminal liability.


Conclusion


The New Advertising Law signifies more stringent regulations on advertising activities especially for potentially misleading information or contexts embedded in advertisements. With specific descriptions of violation situations, the Law provides more detailed and comprehensive protection to customers. In the meantime, it is highly possible that the amended or newly-added part would be the authority's priority for future implementation. We suggest companies should review their promotional activities to ensure they fully adhere to the New Advertising Law.


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