Chinese Consumer Law: Recent Developments and Implications

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ABSTRACT

A consequence of shifting from a centralised to a decentralised market in China is the growing demand for legislation to regulate relationships between different market players. A system of consumer law is necessary to govern the dealings between business operators and consumers. In response to this need, a national consumer statute as well as statutes in other areas have been enacted to deal with various aspects of consumer protection. This paper discusses the roles of the relevant pieces of legislation in protecting consumers in China. This paper also discusses the recent developments in the Chinese consumer law under the revised criminal legislation and the consolidated contract statute, and their implications for investors.

JEL: K39

Keywords: Business; China; Competition; Consumer protection; Contract law, Criminal law; Product quality

I. INTRODUCTION

There is a saying among foreign business operators that, even selling sewing needles, you can still make a fortune in China, if everyone buys one needle from you. This statement suggests the magnitude of the Chinese consumer market. China has nearly a quarter of the world's population. With its 1.25 billion people, all potential consumers, China has become a substantial world market. In addition to the huge population, China's market-oriented economic reform, its on-going open door policy for foreign investment, and its forthcoming entry to the World Trade Organisation is bringing about a blossoming of the commodity market.

However, even under these favourable trading conditions, not all investments in China warrant a rich return. Instead some have suffered from crushing failure. One explanation for this is that foreign investors are unfamiliar with the legal environment in China, and are not aware of the growth of the Chinese consumer movement. Consumer protection is a relatively new area of law in China. In spite of its profound impact on traders in the Chinese market place, the study of Chinese consumer law is not popular amongst western scholars. Very little has been written in a foreign language about the legislation protecting consumers, even though it is part of the overall Chinese legal reform. (1)

The primary aims of this paper are to increase foreign investors' awareness of legal protection of consumers in China, and to generate discussion in this area of law amongst foreign scholars. With these goals in mind, the paper is divided into four parts. In part one, the paper briefly discusses the major Chinese legislation relevant to consumer protection, such as the General Principles of Civil Law, the Product Quality Law, the Unfair Competition Law, the Advertising Law, and the Consumer Protection Law. In part two, the paper focuses on examining aspects of consumerism in recent enactments, namely, The Criminal Law of the People's Republic of China, and The Contract Law of the People's Republic of China. In part three, the paper discusses the implications of the Chinese consumer law and its latest developments for business operators. The final part submits that these legislations all have a distinct role in the consumer protection movement. They supplement rather than replace each other.

II. THE LEGAL FRAMEWORK OF CHINESE CONSUMER PROTECTION--AN OVERVIEW

The theory of consumer protection does not have a long history in contemporary China. This is partly because the establishment of the People's Republic of China in 1949 brought about a major change to the structure of the Chinese economy. From 1949 to 1978, the Chinese government adopted a model of planned economy, where the State controlled production and distribution of all commodities. (2) Since the government purchased all production from manufacturers, the latter were not concerned with profit-making. Furthermore, there was no incentive for business operators to behave unethically or dishonestly to obtain greater profits. (3) At the same time, under the ration system, consumers could not complain about the poor quality of any product allotted. Thus, the concept of consumer protection was left with no significant role to play.

Since 1978 China has undergone a radical transformation from its socialist planned economy to a 'socialist market' (4) economic structure, and it has adopted a new open door policy for foreign investment. A consequence of the socialist market economy is an increase in conflict of interest between business operators and consumers, because business operators must now profit through greater production and sales. (5) This has led to the resurrection of consumerism in China.

China realised that the transition to a socialist market economy would not be possible without a corresponding reform of the legal system. Since 1979, the National People's Congress and its Standing Committee have enacted 286 statutes, 700 administrative rules, and 4000 local laws and regulations. (6) All of these laws form the framework of a socialist legal system for China's market economy, under which Chinese consumer law has gradually developed. Consumer legal protection first appeared at city and province level in the 1980's. (7) Some examples of early consumer protection laws are: The Fujian Province, Consumers' Lawful Interests Protection Regulations; (8) and The Being Municipality, Protection of Consumers' Lawful Interests Regulations. (9) Although city or province regulations may vary, they have the potential advantage of being better able to meet local needs, as consultation is usually carried out before enactment. (10) Furthermore in a vast country like China, local regulations do play an important role. (11)

Together with the consumer laws at city and province level, the National government has passed other legislation, (12) some of whose provisions also provide legal protection for consumers. The major legislation includes the General Principles of Civil Law, the Product Quality Law, the Unfair Competition Law, and the Advertising Law. (13)

2.1 The General Principles of Civil Law of the People's Republic of China

The General Principles of Civil Law of the People's Republic of China came into force on 1 January 1987. (14) The Law lays the foundation for safeguarding consumer's rights and interests. For example, Article 3 states that all parties shall enjoy equality of position in their civil activities. Article 4 further states that civil activities shall respect the principles of voluntary participation, equity, compensation at equal value, honesty, and trustworthiness. In addition, Article 98 provides that citizens shall enjoy the right to life and to health. The Law not only imposes contractual (15) and tortious (16) liabilities on parties in their civil activities, but its also embodies the fundamental principles of legal remedy. Under the General Principles of Civil Law, the victim, usually the consumer in the case of product liability, is entitled to damages, lost income, living allowance in case of disability, medical expenses, funeral expenses, and basic living costs for the deceased's dependants. (17)

2.2 The Product Quality Law of the People's Republic of China

The Product Quality Law of the People's Republic of China came into effect on 1 September 1993. (18) It consists of 51 Articles and is divided into 6 parts. Given the fact that product quality standards are a rather serious issue in China, (19) Part II of the Act deals comprehensively with the supervision and administration of product quality. One objective of the Act is to safeguard the legal rights and interests of consumers as well as users. (20) To achieve this goal, the Act stipulates liability and obligation for business operators at different levels of the distribution chain. Article 14 sets out the liabilities for manufacturers, who are required to ensure product

quality. For example, manufacturers must comply with national or industry standards for the protection of health, personal safety, and property safety; and manufacturers must ensure that their product conforms to any standards indicated on the product itself or its packaging. To a great extent, the manufacturer's product liability applies equally to the seller. Article 28 sets out additional liabilities for sellers regarding remedial actions for consumers or users. For instance, the seller may be required to offer repair, replacement or return of the product sold.

It is important to note that consumer's and user's right of action under the Act is limited to 2 years; and the right to claim compensation is limited to 10 years. The time commences when the consumer or user has actual or constructive knowledge of the infringement of his or her rights, or when the defective product is first delivered to the consumer or user, providing the safe-use period has not expired.

2.3 The Law of the People's Republic of China Against Unfair Competition

The Law of the People's Republic of China Against Unfair Competition came into force on 1 December 1993. (21) It consists of 33 Articles divided into 5 parts. Part I stipulates the objectives of the Act and also provides a definition for its main terminologies. The main purpose of the Act is to encourage and protect fair competition in order to safeguard the lawful rights and interests of business operators and consumers. (22) It is submitted (23) that healthy competition ultimately benefits consumers by providing access to goods and services at the lowest possible price. Part II outlaws certain categories of conduct with respect to unfair competition. Part III supervises and examines acts of unfair competition. Part IV sets out the liability for business operators and Part V pronounces the implementation date of the Act.

The stipulation relevant for consumer protection is grouped under the substantive provisions of Part II of the Act. Articles 5, 9 and 13 prohibit those anti-competitive behaviours that directly affect consumers. This includes deceptive practices such as passing off of registered trademarks; unauthorised use of a name and packaging in order to imitate other goods and services; false or misleading advertising; and dishonest use of competitions, …