Against the backdrop of a long string of product safety scandals that have eroded public trust, and a desire to transition China’s economy from an export-driven model to a consumption-driven model, the Chinese government continues to enhance its legal framework for the protection of consumer rights. On August 5, China’s State Administration of Industry and Commerce (“SAIC”) released for public comment the draft Regulations on the Implementation of the Law on the Protection of Consumer Rights and Interests (“Draft Implementing Regulations”; Chinese only), which are intended to implement China’s amended Law on the Protection of Consumer Rights and Interests (“Consumer Rights Protection Law” or “CRPL”; unofficial English translation by available here). First enacted in 1993, the CRPL was amended in 2009 and then again in late 2013.

According to SAIC, the Draft Implementing Regulations are meant to enhance the protection of consumer rights in areas of high public concern. The draft addresses, among other issues, the timely recall of defective products, return policies, consumer data protection, and prepaid cards. The Draft Implementation Regulations would impose new obligations on manufacturers, retailers, and service providers (hereinafter referred to as “operators”), with failure to comply resulting in administrative penalties and civil liabilities.

Key provisions in the Draft Implementing Regulations include the following:

  • Recalls.  The Draft Implementing Regulations, echoing the existing Administrative Measures on the Recall of Defective Consumer Products released by the General Administration for Quality Supervision Inspection and Quarantine in October 2015, require that upon discovering potential defects, operators are to immediately initiate an investigation into the matter and, if defects are confirmed, must inform consumers and the relevant authorities while taking steps to halt sales and initiate a recall. Note that the Draft Implementing Regulations for the first time apply consumer rights protections to “defects” in services, not just material goods.
  • Return Policies. The Consumer Protection Law contains a mandatory seven-day “no questions asked” return policy, with exceptions for certain categories of goods: made-to-order goods, perishables, downloaded digital goods (e.g., audiovisual works and computer software), and delivered newspapers and periodicals. he Draft Implementing Regulations expand permitted exceptions to include the following (and make clear that operators may not independently make further exceptions):

a. Goods that might easily deteriorate after unpacking in a way that would affect consumers’ personal health or safety

b. Goods that lose significant value upon activation/trial use

c. Goods that are flawed or close to expiry (and expressly indicated as such)

  • Consumer Data Protection. The CRPL requires operators to inform and obtain consent from consumers regarding the purpose, method, and scope of collection or use of consumer personal information. It further bans them from collecting data unrelated to business operations or using “improper” collection techniques. It also prevents operators from divulging consumer personal information without consent, and imposes data security-related responsibilities.The Draft Implementing Regulations reiterate and supplement the consumer data protection rules contained in the CRPL. Among other things, they require that the collection of consumer personal information be related to business operations, require proof of consumer consent to be retained for at least five years, allow for the transfer to third parties of de-identified information without consumer consent, mandate consumer notice in the event of data leak or loss, and prohibit telemarketing calls without consumer consent.

    For more information on the data privacy implications of the Draft Implementing Regulations, please see our article for Covington’s InsidePrivacy blog.

  • Advance Payments. The draft regulations state that operators receiving advance payments should enter into written contracts with consumers, specifying their business address, contact information, product/service name, product amount, and a whole host of other clarifying information, if requested by the consumer. If an operator plans to shut down or change business locations, it must notify its consumers at least 30 days in advance and refund all advance payments and related costs (interest due, transaction costs). Additionally, the consumer has the right to request a full refund within 15 days of an advance payment if no service has yet been provided.
  • Prepaid Cards. The Draft Implementing Regulations require issuers of multi-purpose business prepaid cards to obtain an operating license from the People’s Bank of China (“PBOC”) and comply with specified regulations. Additionally, issuers of single-purpose business prepaid cards must inform customers about redemption risks, and use insurance and other appropriate measures to guarantee the safety of funds.

The Draft Implementing Regulations further include provisions regarding government coordination and supervision, consumer associations and other consumer organizations, dispute settlement, and penalties. They also include special provisions that apply to over a dozen types of product/service providers including utilities, financial services, beauty/cosmetics, motor vehicle/appliance repair, property management, package delivery, interior design, food services, franchise businesses, passenger transport, training services, and agent services (which may include, for instance, real estate agents). These specific provisions may add an additional layer of regulation onto substantial bodies of existing regulation in many of these areas.

Public comments on the Draft Implementing Regulations are due by September 5. Businesses, industry associations, and trade groups with interests in China are advised to pay close attention to the development of these implementing regulations.

Addison Yang and Zhijing Yu of Covington & Burling LLP assisted with the research and preparation of this article.