China's internet advertising market is much larger in proportion to its traditional advertising than Western countries.

The US, for example, spends less than half (47%) on internet and mobile advertising and slightly less on TV advertising (39%).

China, by comparison spends a far greater percentage (66%) of its advertising on internet and mobile and a much smaller percentage (24%) on traditional media.

So, even though the overall dollar amount spent in China is less than in the US, the internet is a much more significant part of advertising in China.

Because of this, China is likely to be a trend-setter for other parts of the world.

To learn a bit more about what might be coming to internet advertising in the rest of the world, here is the background and some detail of the new law in China.

Background

In July, 2015 China's State Administration for Industry and Commerce (“SAIC”) amended the Chinese Advertising Law to cover internet advertising.  

New regulations were supposed to go in effect last September (2015) but were largely unenforced.

Recently, however, there has been renewed interest in regulating online advertising, which may have something to do with the tragic story of Wei Zexi.

The death of Wei Zexi

On April 12, 2016, Chinese student Wei Zexi died after receiving experimental treatment for cancer which he found out about through an ad on China's main search engine, Baidu.

The hospital had, apparently, claimed a high success rate for the treatment in the ad.  

The ads were also regularly featured prominently in search results as the hospital group was reportedly responsible for nearly half of Baidu's multi-billion dollar ad revenues.

Wei Zexi's death drew renewed attention to the Advertising Law from Chinese media, including 250,000 comments on an online editorial on the matter.

In apparent response, the regulators not only censured Baidu and issued specific regulations for it, but also followed up with new laws.

Response

On July 4, 2016 the SAIC issued new regulations, the Interim Measures for the Administration of Internet Advertising, which take effect on September 1, 2016.

The Advertising Law and the Interim Measures are the first step China's SAIC has taken toward defining and regulating advertising.

The new laws

Internet advertising defined

There is a lot of detail in the definition of internet advertising in the new law (which you can read about here), but in brief, internet advertising is defined as any commercial marketing anywhere on the internet for anything.

The definition is broad and even includes out-of-home displays with web addresses and recommendation engines on ecommerce platforms.

Internet publishers defined

More interesting is how the regulators define a 'publisher.' According to the law a publisher refers to those who push OR display the advertising.

This can include websites, ad tech platforms, influencers, and even internet service providers.  

In short, anyone who has the ability to review and prevent an illegal ad from showing can be held responsible.

This definition is, again, quite broad and will give the government a lot of flexibility to enforce the law as it likes in the future.

Publishers obligations

The real meat of the regulation, however, are the publisher's obligations.

According to the new law, publishers will need to: 

  • know who their customers are,
  • verify any credentials they give, and
  • verify the ad content.

To handle this, publishers and ecommerce sites will be expected to hire specialists to record customer details, review all ads and block those which do not comply. 

While there are other things in the law, such as anti-spam clauses and a ban on ad-blockers (maybe), the fact that publishers, broadly defined, will be responsible for the claims made by advertisers is among the biggest changes.

This means that China has gone from one of the least regulated advertising markets to one of the most, almost overnight.

Example: Baidu

These regulations sound somewhat far-reaching and difficult for companies to comply with.

But have a look at Baidu's search results for cosmetics (化妆品).  The top three results are ads and are, as one might expect, marked as promotional posts on the right in blue (商业推广).

But interestingly there is also a grey link after the domain name (评价) which sends the browser to another page, offering details about the advertiser and fielding comments.  

Here it is for one vendor, translated into English by Google.

It seems, therefore, that Baidu is already taking the regulations quite seriously.

Why everyone should be interested in China's new laws

1. The new laws raise interesting questions for other countries

Most Western countries have carried over existing advertising legislation to online platforms.  

This works well when the advertising model has two players, the advertiser and the publisher, but breaks down when there are multiple parties involved.

Unresolved questions include:

  • Who is responsible for ad content in programmatic advertising?
  • Is checking native ads the reponsibility of the publisher or the agency?
  • What about influencers who appear on a social media site via an agency?

China's legislators have a simple answer, everyone in the ad chain is potentially responsible.  

While this may seem heavy-handed it will likely encourage the various players to be much more careful with ads than if they felt they could always blame the originator or the delivery platform.

2. The regulation might set a trend

Because the law does address these issues left somewhat unclear in the West, China's approach may attract the attention of Western regulators.

As of yet, there have been very few cases of regulators cracking down on behavioural, programmatic, or even influencer marketing.

One recent example is from the US. The  Federal Trade Commission filed a complaint against fashion retailer Lord & Taylor in the US for unregulated influencer marketing.

There are, however, very few other cases of such action and, in fact, many marketers freely admit overstepping guidelines set by their regulators.

If China's approach works without seeming heavy-handed, therefore, other countries may end up with similar laws governing internet advertising.

3. The new laws could spark innovation

One interesting angle in all of this is because each layer of the ad tech stack is held responsible for content, it is likely that technical monitoring solutions will arise.

It will not be easy for publishers, agencies, buy and sell-side platforms, and even brands to ensure that all ads published are compliant.

Because of this, new ad tech with compliance features may spring up to help all involved with the process.

So...

Brands that are advertising in China should become familiar with the legislation as soon as possible.  

As of September 1, 2016 the State Administration for Industry and Commerce will be monitoring for ads which violate the policies set out in the Advertising Law and the Interim Measures for the Administration of Internet Advertising.

Those who do not currently advertise in China should, however, take note as well.  

Most other countries currently enjoy little or no regulation, but should China's attempts to regulate be effective it would not be a surprise to see such laws appear elsewhere.

For related information, read Econsultancy's China Digital Report.

Jeff Rajeck

Published 29 August, 2016 by Jeff Rajeck

Jeff Rajeck is the APAC Research Analyst for Econsultancy . You can follow him on Twitter or connect via LinkedIn.  

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Comments (2)

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Martin Pezet, Head of Digital - Traffic Delivery at World First

Our company currently advertises extensively in China. This law seems to be affecting mainly health related products (as per the case of Wei Zexi) and also financial services, which is where we operate. One of the toughest interpretations of the new law so far for us has come from Haosou (formally Qihoo 360) which is making it much harder to advertise on compared to Baidu or Sogou.

about 1 year ago

Jeff Rajeck

Jeff Rajeck, Research Analyst at EconsultancySmall Business

Interesting - thanks for the insight.

It's hard to tell exactly what is going on from the various news stories, so real world experience is greatly appreciated!

about 1 year ago

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