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Overview on the Interim Provisions on Regulating Sales Promotions

28 December 2020

On 5 November 2020, the State Administration for Market Regulation ("SAMR") released on its website the Interim Provisions on Regulating Sales Promotions ("Provisions"). The Provisions took effect on 1 December 2020. On 6 November 2020, the SAMR also released a document, titled Answers by major People in charge of the Price Supervision and Inspection and Anti-Unfair Competition Bureau under the State Administration for Market Regulation to Reporters’ Questions (“Press Release”).

According to both the Provisions and the Press Release, the Provisions will be used as important guidance for the market supervision authorities to regulate sales promotions. Further, the Provisions act as guidance for business operators when they conduct sales promotions. In addition, the Provisions also provide a legal basis for the protection of legitimate rights and interests of consumers.

Below is an overview on the key aspects of the Provisions.

According to the Provisions, for the purpose of selling products (and/or providing services) or achieving competitive advantages, the means of sales promotions include, inter alia, prize-giving sales, price promotions and free trials.

1. Prize-giving Sales

The term "Prize-giving Sales" refers to the circumstances in which a business operator, for the purpose of (i) selling products (and/or providing services); or (ii) achieving competitive advantages, offers monetary rewards, valuables or other interests to consumers.

In other words, according to the Provisions, selling products and/or providing services shall not be regarded as mere preconditions for sales promotions.

The Provisions expressly state that the activities of a business operator, such as promoting mobile clients, soliciting customers, increasing awareness, obtaining popularity, or increasing the click rate of users, shall also be regarded as Prize-giving Sales, provided that such business operator offers monetary rewards, valuables or other interests to consumers.

a) Activities which a business operator shall conduct in respect of Prize-giving Sales

(1) Before the Prize-giving Sales is conducted: A business operator shall expressly make public the information on Prize-giving Sales. Further, such information shall not be changed unless the relevant changes are beneficial to the consumers.

(2) During the time when the Prize-giving Sales is conducted: If the prize-wining results shall be shown instantly, for prizes which are above RMB 500, such prize-wining information results shall be made public instantly.

(3) After the Prize-giving Sales is done: A business operator shall establish archives documenting the transaction. The archives shall be properly kept for two years and be subject to supervision and inspection according to PRC laws.

b) Activities which a business operator shall not conduct in respect of Prize-giving Sales

(1) A business operator shall not conduct deceptive Prize-giving Sales, including (i) falsely declared Prize-giving Sales; and (ii) sales with priorly designated winners.

(2) A business operator shall not conduct improper lottery related Prize-giving Sales, including, without limitation:

(a) The amount of the highest prize for a lottery-related Prize-giving Sales exceeds RMB 50,000;

(b) If the prizes are offered in such forms as the right to use a certain object or a particular type of service, the market price of such right or service is higher than RMB 50,000; and

(c) If the prizes are offered in the form of price reduction, preferential treatment or discounts, the relevant reduction, preferential treatment of discount is more than RMB 50,000.

2. Price Promotions conducted by Business Operators

According to the Provisions, when a business operator conducts price promotions, it must observe the following:

a) If a business operator imposes conditions on price promotions, or conducts price promotions in the form of price reductions or discounts within a time limit, it shall clearly indicate such conditions or time limit.

b) If a business operator provides a discount or price reduction, the benchmark price (“Benchmark Price”) thereof shall be stated or indicated in a manner which is easy for consumers to understand.

(1) If the Benchmark Price is not stated or indicated, the Benchmark Price for the discount or price reductions shall be the lowest transaction price of the same business operator within seven days prior to such price promotions in the same business premises;

(2) If there was no transaction within seven days prior to such price promotions, the Benchmark Price for the discount or price reduction shall be the latest transaction price before such price promotions.

3. Sales Promotions organized uniformly by the Providers of Trading Venues (as defined below)

If the sales promotions are organized uniformly by outlets, shopping malls, marketplaces or e-commerce platforms (collectively, the “Providers of Trading Venues”), the Providers of Trading Venues shall (i) work out appropriate plans; (ii) publicly announce the rules for and duration of sales promotions, and restrictive conditions which will be disadvantageous to consumers; and (iii) remind the business operators of the issues to which they should pay attention to in sales promotions.

In the event the Providers of Trading Venues find out that a business operator has committed an illegal act in the sales promotions, they shall take necessary measures to deal with the same in accordance with PRC laws, keep the relevant information on record, and provide assistance to the relevant marketing supervision authorities when the latter investigate and deal with such illegal acts.

4. Legal Consequences

The Provisions state that violations of the Provisions shall be subject to administrative penalties according to various PRC laws and regulations, including, inter alia, the PRC Anti-Unfair Competition Law, the PRC Price Law, as well as the PRC Law on the Protection of Consumer Rights and Interests.

Further, the concerned business operators or the Providers of Trading Venues will also suffer reputational damages since the relevant marketing supervision authorities in charge will publish the administrative decisions publicly, i.e. in the National Enterprise Credit Information Publicity System.

5. Conclusion

The Provisions, which contain stipulations on anti-unfair competition, prices, consumer rights protection, etc., will be useful in guiding business operators to operate in compliance with PRC laws and regulations, safeguarding the legitimate rights and interests of consumers, and help to create a more fair and orderly market environment.

Authors

Aiping Bao
Aiping Bao
Counsel
Shanghai