China Issues New Draft Law to Strengthen Oversight Over Internet Advertising

On November 26, 2021, the State Administration for Market Regulation (the “SAMR”) issued a discussion draft of the Measures for the Administration of Internet Advertising (the “Draft Measures”) for public comment. The Draft Measures will increase oversight of internet advertising, which has evolved considerably since the issuance of the Interim Measures for the Administration of Internet Advertising (the “Interim Measures”) five years ago.

We summarize some key points of the Draft Measures below.

Catches all types of online promotions

All “internet advertising activities” are regulated under the Draft Measures. The definition for that is "commercial advertising activities within the PRC for direct or indirect introduction of products or services promoted by business operators or service providers via websites, web pages, internet apps and other internet media in the form of text, pictures, audio, video or other forms.” This appears to capture all types and forms of promotions that brands conduct online, including the most popular livestreaming promotions.

Not limited to PRC advertisers 

The definition of internet advertising activities specifies ads “within the PRC” and the draft makes no claim of extra-territorial effect. However, this does not mean that advertisers outside of China can ignore the law. The Draft Measures specifically mention overseas advertisers that advertise, or entrust to advertise, on a cross-border e-commerce platform, even if they have no PRC corporate presence. In that scenario, such overseas advertisers must entrust a PRC entity in writing to take responsibility as the advertiser, and such PRC entity shall be the same entity that conducts customs clearance and provides information on payment, logistics, warehousing and other related information for such overseas advertisers. This implies that this scope only applies where the cross-border e-commerce platform at issue is accessible in the PRC, and where the product advertised is being sold in the PRC, but the draft is not clear.

No way to avoid labeling as an “Ad”

The Interim Measures already required that “an internet advertisement shall be identifiable and clearly identified as an ‘advertisement’.” The Draft Measures add details to this requirement, stipulating that advertisements in the form of search results, news reports, experience sharing, product/service reviews, or activities that include links for purchases to be made, must have the word "advertisement" clearly marked. This is meant to make sure that consumers will not be confused by seemingly objective information that is in fact an advertisement.

Livestreaming advertising is regulated

Under current advertising law, the liability of live streamers is unclear (please refer to our previous article here: http://blog.galalaw.com/post/102glpd/released-guidelines-on-strengthening-supervision-of-online-livestreaming-marketi). But in market practice, livestreaming content and advertisements have become closely linked. The Draft Measures make very clear that "livestreaming room operators" and "livestreaming marketers" (both of which are defined in the Management Measures for Internet Live-streaming Marketing (for Trial Implementation) effective from May 25, 2021) must abide by the responsibilities and obligations of internet advertising operators, advertising publishers or advertising endorsers, as applicable, if the livestreaming content constitutes an advertisement (which will apply to many streams, as summarized in paragraph I and III above).

“One click to close” requirements are updated

Strengthening the “one click to close” requirement from the Interim Measures, the Draft Measures specify that autoplay-upon-open ads, video-insert ads and pop-up ads shall all be clearly marked with a “close” button in order to ensure that users can shut the ad with “one click”. Moreover, several features commonly used by these types of ads are now explicitly prohibited, including requiring a countdown or forcing users to click multiple times in order to close the advertisement.

Protecting minors against harmful ads

The protection of minors from various negative influences is a common goal in many recent PRC regulatory actions. The Draft Measures continue this trend by prohibiting advertisements for certain items on internet media that targets minors, including, among others, advertisements related to online games that are harmful to the physical or mental health of minors, cosmetics, alcohol, or beauty. Also, online advertisements for after-school training for primary/middle school students or for kindergarteners are banned, which is consistent with recent PRC policy eliminating all such ads.

Internet platform responsibilities are clarified. 

The Draft Measures differentiate “internet information platforms” from “internet advertising publishers/operators”. The former refers to platforms that solely provide information services through the internet and that are not involved in the design, production, agency, publishing or other online advertising activities. “Internet advertising publishers” refers to any natural person, legal person or other organization publishing an advertisement for an advertiser or for an advertising agent entrusted by an adviser through the internet; and “internet advertising operators” refers to any natural person, legal person or other organization offering internet advertising design, production or agency services. These definitions will need to be further clarified, but in practice it is likely that platforms may occupy more than one of these roles at a time, depending on the specific user action or platform feature being used.

For internet information platforms, i.e. where the platform is not directly involved in online advertising activities, the Draft Measures state that they are responsible for taking measures to prevent and stop illegal ads, improve technological measures to detect and dispose of acts that promote criminal acts or insert malicious code or illegal information, and undertake additional technical requirements including (i) keeping records of advertisers, publishers, and operators  for no less than three years; (ii) monitoring ad content and stopping illegal ads; (iii) establishing effective and convenient channels for claims and reports; (iv) cooperating with the SAMR on ad monitoring; and (v) taking measures, such as issuing warnings, or suspending or terminating services to those post illegal ads.

For internet advertising publishers/operators, the obligations enumerated under the Draft Measures are consistent with those under the Interim Measures, namely, (i) establish and improve advertising business systems; (ii) verify and record each advertiser’s information; (iii) verify supporting documents and review ad content; and (iv) engage ad reviewers familiar with ad regulations, and establish a separate department for internet ad review. The Draft Measures also require them to keep related ad information for no less than three years, and to provide authentic, accurate, and complete statistical data timely during any ad industry statistical surveys.

Conclusion

The Draft Measures are open for public comment until December 25, 2021. Despite not knowing when the final version will be promulgated or whether it will have significant changes from this draft, it is a near certainty that the broader trend of strengthened regulations for internet activities in China will continue and will include online advertising.