Over the past several years, the Chinese government has turned its attention toward greater regulation of advertising, and more recently of online advertising. Following in the footsteps of the amended Advertising Law implemented in 2015, the State Administration of Industry and Commerce’s (SAIC) Interim Measures for the Administration of Internet Advertising came into effect on September 1, 2016. The new regulation clarifies what content is considered “internet advertising,” lays down rules for “publishers” of online advertisements, and outlines investigation measures and penalties for violators. Given the ubiquity of online advertising in China, the regulations will have a widespread impact on the actions of advertisers and platform operators.
What qualifies as “internet advertising”?
- According to the regulation, internet advertising encompasses the following activities:
- Product promotion via text, pictures, videos, links
- Email advertisements
- Paid search advertisements
- Advertisements within commercial presentations
In practice, any digital content placed on any online platform with the intent of promoting a product or service could be subject to the regulation.
Who is an internet advertising “publisher”?
The regulation identifies individuals or groups called “publishers” who hold the responsibility of complying with the online advertising rules (and are subject to penalties when in violation). Any entity conducting the following activities is considered an internet advertising “publisher”:
- Displaying or submitting internet ads
- Verifying or moderating submitted ads for publishing
Notably, this group includes both content creators and platform operators such as search engines or content sharing platforms that host third-party advertisements.
Products and services requiring approval
The Interim Measures for the Administration of Internet Advertising applies to products and services under the same scope as the preexisting Advertising Law, which has been in effect since 2015. The new regulation reiterates the online advertising restrictions included in the Advertising Law, prohibiting online advertisements for prescription drugs and tobacco products. The regulation also states that the following products require review before being published online:
- Medical treatments
- Foods for special medical purposes (FSMP)
- Medical devices
- Veterinary drugs
- Dietary supplements
Effects of the Regulation
Implications for Advertisers
The regulation holds advertisers responsible for the veracity of their content. In addition to this, advertisers are prohibited from engaging in deceptive or disruptive online advertising tactics and from unfair competition tactics.
To avoid disrupting internet users, a one-click close option is required on pop-up advertisements. Advertisers are not allowed to send advertisements in emails without permission from recipients, and email advertisements must include opt-out links. Additionally, advertisers may not use disruptive tactics to entice users to click on links, either in emails or on web pages.
Under the regulation, advertisers are also barred from using unfair competition methods such as interfering with the display of competitors’ advertisements using applications or network devices.
Implications for Platform Operators
Platform operators are given the responsibility to monitor the third party advertisements they post and can be subject to the same or steeper penalties that advertisers face in cases of violation. Under the regulation, advertisements must be clearly labeled so that users can differentiate between advertising and non-advertising content. Similarly, search engines are required to differentiate clearly between paid and organic search results.
If a third party wishes to advertise on an online platform, the platform operator is responsible for verifying the identity of the advertiser and removing illegal advertisements. This will result in notable revenue loss for search engine providers like Baidu, which are legally required to reject illegal advertisements and their accompanying revenues. The regulation also requires that platform operators employ an advertisement review team to examine both the contents of the advertising and the qualifications of the advertiser.
This article was first published September 2016.
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond.