BEIJING (BLOOMBERG) - China enacted sweeping changes to a business competition law to address fraud in the e-commerce industry, which is plagued by malfeasance ranging from fake positive reviews to merchants goosing sales numbers.
The National People's Congress adopted revisions on Saturday (Nov 4) to the Anti-Unfair Competition Law intended to address online retailers, the official Xinhua News Agency reported.
The changes take effect on Jan 1, but were announced days before Alibaba Group Holding's Nov 11 Singles' Day bargain extravaganza, which dwarfs Black Friday in the US in terms of revenue.
The Chinese law initially took effect in 1993 as a way to protect consumers and businesses from unfair market practices. At that time, none of China's biggest online companies - including Alibaba, Tencent Holdings, Baidu and JD.com - even existed.
As e-commerce developed and prospered, attendant problems grew with it.
These latest revisions stipulate that operators shouldn't deceive consumers by faking sales or employing "click farms" to rack up positive product reviews - increasingly common practices that have drawn the ire of buyers.
And the rules encompass the entire breadth of Internet commerce, from online goods and movie ticketing to food delivery.
"You now cannot delete bad comments or employ people to leave good comments," said Ms Christine Yiu, an intellectual property law expert and partner at Shanghai-based Bird & Bird.
"It's a welcome change that echoes with the whole direction that China's trying to move in, by strengthening old protections and discouraging infringement in the market."
Another example of such fraud in China is e-commerce sites buying up movie tickets to artificially boost a film's box-office rankings and to drum up popularity, Ms Yiu said.
The new legislation states that businesses should be self-policing when upholding market order. Among the punitive measures outlined, online merchants that fake sales or feedback can be fined as much as 2 million yuan (S$410,000) or lose their business licence, the state-run China Daily newspaper reported on Monday (Nov 6).
"The revision will better address new problems emerging in the market and protect the rights and interests of both business operators and consumers," said National People's Congress's Standing Committee official Yang Heqing on Saturday, according to Xinhua.
The practice of "brushing" - faking sales transactions to boost rankings or draw more traffic to a website - has plagued Chinese online commerce for years. Much of the criticism focused on Alibaba, the market leader, which has a complicated history with brushing operators and has been trying to stamp out such practices.
The Hangzhou-based company sued Shatui.com last year for allegedly linking merchants with people willing to falsify purchases and reviews to help boost sellers' rankings. Along with the lawsuit, China's biggest technology company warned that merchants found to be violating its policies can have their credit scores cut or businesses shut down.
With a billion listings on Alibaba's Taobao website alone, standing out is critical for online sellers. The art of brushing comes down to tricking a site into believing a purchase has been made and then disguising the movement of money that makes it happen. The fake buyer is then paid by the brushing company.
Chinese companies aren't alone in battling fabricators. Amazon is trying to quash fraudulent reviews, and Facebook is combating "fake news." Yet China's operators take things to the next level by crowdsourcing the tasks to thousands of people.
"We tried to keep the interests of vendors and customers in mind while revising the law because we need to keep fair market order while encouraging innovation in the cyberspace," director Yang Hongcan of the Anti-Monopoly and Anti-Unfair Competition Enforcement Bureau of the State Administration for Industry and Commerce, said, according to China Daily.