China expands credit blacklist to include unscrupulous online sellers

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China’s online store operators and e-commerce platforms that engage in unfair practices against competitors will be added to the country’s official credit blacklist, according to a new draft rule issued by China’s State Administration of Market Regulations on Wednesday.

Why it’s important: Despite exponential growth, China’s e-commerce market has long been plagued by unscrupulous business practices from user review manipulation to “brushing,” or faking orders.

  • The list is part of the country’s broader effort to boost “trustworthiness” in Chinese society and is an extension of the country’s social credit system.

Details: Unfair business practices which qualify an e-commerce business for the credit blacklist include activities such as creating fake orders, deleting negative user reviews, posting fake positive reviews, and spreading rumors against rivals.

  • Online sales platforms will be blacklisted for not effectively regulating merchant activity on their platforms, failing to protect the rights of consumers, or hindering market monitoring by regulatory authorities.
  • Once blacklisted, sellers are barred from qualifying for preferential policies from the state such as tax cuts, are subject to closer monitoring from the government watchdog, and will be given stricter punishment for the same misconduct, among others.
  • In addition, blacklisted online business operators will be required to show on their sites a notice to warn consumers.
  • The draft regulation is open for public comment until August 10.

Context: China has been ramping up its efforts to regulate its flourishing yet flawed e-commerce industry. China’s Electronic Commerce Law, which seeks to hold both seller and platform accountable, came to effect at the beginning of this year and was a major regulatory milestone for the sector.

More than 3.59 million Chinese enterprises and 2.61 million individuals were added to the official credit blacklist last year.