China’s latest e-commerce law takes tougher stance on grey market sellers. The e-commerce legislation, which is effective since 1 January 2019, aims to protect Chinese consumers from counterfeit products by holding platform’s accountability in discouraging grey market retailers.
This e-commerce law applies to platform operators (eg. Taobao, JD.com, Pinduodo), sellers who operate shops on e-commerce platforms, and other types of e-commerce business (eg. standalone e-commerce sites, WeChat stores).
Because of the new e-commerce law, all e-commerce businesses in China faces more scrutiny and paperwork.
- Larger marketplace platforms increase efforts to protect Intellectual Property (IP) rights and product authenticity, as sellers who post counterfeit items on the marketplace and the platforms themselves can be held accountable for violations. E-commerce platforms are also held accountable if they fail to respond to claims of counterfeit products.
- Mom-and-pop sellers on individual-run online stores and e-commerce platforms (eg. Taobao, WeChat) have to file tax returns and obtain business license, leveling the playing field between online retail and brick-and-mortar retail stores
- Daigou Agents – people who buy products overseas and resell them in China – are also regulated by this e-commerce law, forcing them to exit the market or raise prices. This can benefit cross-border e-commerce.
China E-Commerce Law Enables Brands to Report Grey Market SellersPicture from DMB Shanghai
E-commerce marketplace platforms in China have enabled IP owners to report violations. However, the official brands are the ones who have to provide the proofs of violations.
The e-commerce law also regulates online retail platforms to protect customers from fake reviews and prohibits e-commerce platforms from imposing unreasonable conditions, fees, or restrictions on merchants and from restricting or excluding competition.
The online retail law does not affect cross-border e-commerce players in the sense that cross-border e-commerce businesses are less likely to be suspected of selling or sell counterfeit items. However, since their competitors – the Daigou Agents who earn profit from the markup between products sold overseas and those sold in China – are now regulated and their margins become thinner thus driving them away from the market, cross-border e-commerce businesses may see increases in sales as Daigou consumers may purchase directly from them instead.
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