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China s new consumer law has local and foreign firms worried
Mar 15th 2014 | SHANGHAI | From the print edition
FIFTY-TWO years ago this week, John Kennedy gave a speech to Congress in which
he argued that consumers are the only important group in the economy who are
not effectively organised, whose views are often not heard. His eloquent plea
for their protection led to the United Nations guidelines for consumer
protection and to the annual celebration of World Consumer-Rights Day on March
15th.
Nowhere is that day marked with more gusto than in China, where it is known as
san yao wu (three one five). Every year on that date, the national broadcaster
airs a much-watched programme lauding consumer rights. It is also used as an
excuse to bash successful foreign firms Apple was last year s main target for
small or imagined transgressions.
This year China will better honour Kennedy s legacy. The television gala is
still due to be broadcast this weekend, and corporate evildoers internet firms
are rumoured to be in the crosshairs this time will probably be shamed again.
But something more important will also happen. On March 15th a new consumer
law, the biggest reform in this area in 20 years, comes into force. At face
value, it appears to give a big boost to consumer protection. Retailers must
take back goods within seven days; in the case of online purchases, consumers
do not even have to offer a reason. Consumer data will be protected from
misuse, and permission will have to be sought for any commercial use of them.
Class-action lawsuits, hitherto rare in China, will become easier to file.
The motivations for the law seem sincere. The government is keen to shift the
economy towards consumption-driven growth. Regulations protecting consumers
should help, by bolstering their trust in merchants. Max Xin Gu of K&L Gates, a
legal firm, also believes the law is timed to come hand-in-hand with the
anti-corruption campaign launched by President Xi Jinping: both are meant to
allow ordinary people to benefit from the rule of law.
James Feldkamp is the founder of Mingjian, a pioneering Chinese website
offering independent product reviews (akin to America s Consumer Reports or
Britain s Which?). He agrees that trust and transparency are key to boosting
consumption. However, he worries about how the law will be implemented and
enforced. Indeed it may leave consumers ill-protected even as it saddles firms
with extra costs and complexity. For example, although parts of the law
resemble the EU s strict rules on data privacy, it has important gaps. Michael
Tan of Taylor Wessing, another law firm, notes that it does not grant a right
to be forgotten (by having firms expunge all record of a former customer). It
leaves businesses in the dark on how exactly they can use customer data, and
fails to impose on them a duty to ensure their accuracy.
Opening the door to class-action lawsuits may also prove a damp squib. In
America aggrieved consumers can club together and go to court themselves. In
China, points out Mr Tan, only government-controlled consumer associations will
be allowed to launch such suits: no ambulance-chasers here. It is hard to
imagine consumers persuading these official bodies to bring suits against state
firms.
Consumer businesses fear that besides falling short in protecting punters, the
law will tie them up in red tape. Publicly, local firms such as Alibaba, an
e-commerce giant, say they are ready. Privately, many are worried. An executive
at another big Chinese firm grumbles that it s a boatload of work and internal
co-ordination to hit compliance. Worse, the bureaucracy and the risk of
prosecution may deter entrepreneurs from starting firms to compete with
established ones; if so, the result will end up being bad for consumers.
China is catching up with the European Union s exacting standards of consumer
rights in much the same way as it has begun imposing EU-style curbs on cars
emissions. In both cases, pressure from ordinary Chinese prompted the
government to tighten standards. Besides benefiting the public, the pollution
measures give an edge to firms with the most advanced technology, which in this
case happen to be foreign multinationals.
As for the consumer law, Western firms, used to operating within strict
consumer-rights regimes back home, ought to cope better with it than domestic
ones. But the opposite may happen. Although on paper the law does not
discriminate between Chinese and non-Chinese businesses, a local lawyer worries
about sporadic and discretionary enforcement , in the same way that China s
antitrust laws have been applied strictly to foreign firms whereas local ones
have usually been spared.
When faced with angry customers, domestic firms often have flexible rules, and
can act fast to defuse crises even if it means quietly paying off undeserving
complainants. They also know people who scare people, says an expert on the
local business scene, which obviously helps silence troublemakers.
Multinationals, in contrast, tend to be bound by rules laid down in a distant
head office (which would certainly preclude sending in heavies). By the time
they have reacted to problems, unhappy customers may have taken to their weibo
microblogs or the news media to stir up trouble. Most foreign firms, concludes
Scott Thiel, a lawyer at DLA Piper, are just not ready for this law.