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Will the Newly Implemented Interim Measures for Administration of Internet Advertising by China Impact the Development of Fintech?

Edward Yang

The Interim Measures for Administration of Internet Advertising (hereinafter the “Interim Measures”) promulgated by Decree No.87 of China’s State Administration for Industry & Commerce on July 4th, 2016 has come into force as of September 1st. The Interim Measures consists of a total of 29 articles, providing a relatively clear set of regulations on advertising activities via the Internet. The implementation of the Interim Measures means that future Internet advertising activities by Chinese E-commerce operators will be placed under its regulation, and it is foreseeable that China’s E-commerce sector will undergo certain changes in its current operation models.

The implementation of the Interim Measures might have the following impacts on China’s booming E-commerce business and social media platforms:
Internet advertising shall be clearly labeled as “advertisement”
Upon the implementation of the Interim Measures, promotional information displayed on search result webpages of E-commerce platforms will be regarded as advertisements, and thereby included and subject to its regulation. The Interim Measures regulates that promotional information of E-commerce operators shall be identifiable and enable consumers to identify it as an advertisement. This provision applies to not only E-commerce platforms but also promotional advertisements published on social media platforms. That is to say, any advertisement published on social media websites or app programs has to be clearly marked, enabling consumers to identify it as an advertisement.
Search engine promotion services are also defined as advertising
Article 7 of the Interim Measures explicitly stipulates that paid-search advertising shall be clearly distinguished from organic search results. China’s search engines used to present controversial results, impeding users from unmistakably distinguishing search advertisements paid to be displayed by advertisers from organic search results. Since the first half year of 2016, China’s major search engines have started to label “commercial promotion” on paid-search contents to make a clear difference. However, the Interim Measures has clearly defined search promotion services as advertising. It can be expected that the new regulation will impact both the advertising business of search engine operators and the willingness of advertisers to promote products and services via search engines.
Clearly define the use of pop-up windows
According to Article 8 of the Interim Measures, advertisements released via such means as pop-ups on a webpage shall be clearly marked with a Close sign, enabling users to close them with a single click. The same article also prohibits deceptive means from being employed to lure users into clicking on an advertisement. It remains to be seen to what extent this provision will regulate problems such as the abusive of usage of pop-up ads, unable to close ads, redirection and inducing users to click on ads. However, it is no doubt a huge progress for China in its administration of pop-up ads, the employment of which on websites is such a mess at the present.
Impacts on Fintech and the development of relevant intellectual property rights in China
The implementation of the Interim Measures will, to some extent, result in changes and adjustments to current operations of China’s E-commerce sector and social media platforms. Internet advertising that used to be exempt from explicit administration is now subject to further scrutiny to conform with new regulations. Due to policy changes, E-commerce operation models, the ways Internet ads are generated, search engine matching algorithms and algorithms identifying ads maliciously placed will see adjustments or changes in adaptation to the Interim Measures, heralding a new wave of IT development. Currently, China keeps preventing software inventions from being patented, so enterprises that take initiatives to invest resources into developing new technologies will end up unable to protect their own intellectual property rights. The dilemma might in turn undermine the willingness of China’s E-commerce operators to invest in research and development. It is, therefore, worth keeping track of whether China’s State Intellectual Property Office (SIPO) will amend or adjust its examination of software inventions.