Beware the Ides of March: Consumer Products and the Challenges of Professional Consumers in China

The Chinese consumer products market has witnessed tremendous growth in recent years, and global companies continue to clamor for access to its 1.3 billion prospective customers. However, the Chinese consumer product market is not without its perils, and sophisticated companies know to be especially circumspect in advance of March 15 when "World Consumer Rights Day" descends on China. 

March 15 marks "World Consumer Rights Day," which was first observed in 1983 in honor of a speech delivered by John F. Kennedy on March 15, 1962. In his speech, JFK proclaimed that the American consumer has four basic rights: the right to safety, choice, information, and to be heard. China began to observe World Consumer Rights Day in 1986, shortly after the establishment of the China Consumers Association (CCA). Ever since, the Chinese authorities have increasingly used Consumer Rights Day to illustrate a growing commitment to consumer product quality and safety in China. 

The prominent positioning of consumer rights protection on March 15 leads to extensive State media attention, on China Central Television (CCTV) and other media outlets, and government scrutiny of substandard products and companies marketing them in the People's Republic of China (PRC). Not surprisingly, foreign firms and their products often find themselves in the crosshairs.  Companies must be on guard for - and responsive to - potential challenges from government, consumers as well as predatory "professional consumers." We provide below a general overview of China's consumer rights protection law and the impact of World Consumer Rights Day in China on marketing consumer products. 

Notably, Keller and Heckman's Shanghai and Washington, DC offices, are hosting a complimentary webinar on Consumer Products Safety and applicable regulations in China on March 8, 2016.  You can register for this webinar here.

Consumer Claims and Legal Basis

The PRC Law on the Protection of Consumer Rights was most recently amended in 2013.[1] The Law provides for various consumer rights in China, including the right to safety, to product/service information, to choose, to fair dealings, to damages, to establish organizations for legal rights protection, to obtain knowledge, to respect and protection of personal information, and to supervise. Additionally, the Law imposes various obligations on business operators, including provide safeguards for their products/services, etc. The law stipulates penalties for false advertising, fraud and other offenses. Article 55 of the Law notes that business operators which fraudulently supply commodities/services must, per consumers' demands, increase compensation for consumers' losses of triple the amount paid by the consumer for the commodity/service. Where the cost of the goods/services is less than 500 RMB, the business operator would be responsible for up to 500 RMB, except as otherwise specified in the Law. The law also provides more basic assistance to consumers in that it requires retailers to accept returns (unless otherwise agreed upon) within 7 days of purchase.[2]

Such claims are governed by the Provisions of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Cases Involving Food and Drug Disputes,[3] which gives free rein to professional consumers in disputes relating to food or drug product quality.  Specifically, Article 3 of the Provisions prevents courts from hearing arguments from a manufacturer/seller that the buyer purchased the food or the drug with prior knowledge of the quality problems. Therefore, although professional consumers deliberately purchase the food and/or drug products they know to have quality issues, they are compensated for damages. Although the title suggests that the Provisions pertain specifically to food and drug disputes, they do reference other types of consumer products (e.g., cosmetics are noted in Article 17), such that the Provisions also may influence disputes relating to other categories of consumer products.

At the same time, China's amended Food Safety Law entered into force on October 1, 2015, and restricts consumers' access to punitive damages up to ten times the purchase price. For instance, no punitive damages are available to consumers for food labeling defects which would neither impact food safety nor mislead the consumers. Further, sellers are subject to such punitive damages only if itknowingly sells substandard foods.[4]

Professional Consumers, Media Scrutiny and "3.15 Gala"

While the above legal provisions surely bolster the rights of the average consumer, they also have opened the door to so-called "professional consumers." Such individuals exploit this provision of the Law by first identifying products on the market that are non-compliant and then purchasing large volumes with the intent to file compensation claims. In this manner, they can garner substantial earnings via predatory lawsuits on flawed commodities. Their existence should serve as ample warning to manufacturers and retailers to take all necessary steps to ensure that food, drugs and other consumer products strictly comply with applicable laws and Standards.

Aside from potential lawsuits from professional (and conventional) consumers, there is also a significant risk of negative media exposure. In fact, since 1991, CCTV has broadcasted the so-called "3.15 gala" every year, which exposes businesses that make or sell fake and/or inferior products or provide defective services. Some prominent examples that have been exposed and broadcast by the 3.15 gala are discussed below.

On Consumer Rights Day in 2011, the 3.15 gala reported the use of pork that contained the prohibited clenbuterol by the Shuanghui Group, one of the largest meat processing companies in China. After the broadcast, the Shuanghui Group was forced to stop related production and recall affected products from the market, which caused significant loss to the company.[5]

On Consumer Rights Day in 2014, Chinese State media widely reported that the foreign-owned bakery, BreadTalk, had purchased expired food raw materials from a trading company in Hangzhou.[6]  The same event also blamed Japanese camera producer, Nikon, for refusing to accept returns after repeated repairs failed to resolve black spots in photographs taken by its D600 cameras.[7]

In 2015, CCTV publicized Land Rover's continued denial of quality issues despite consumer complaints about and increased repair demands for the gearbox in its Range Rover Evoque. Less than 4 days after the broadcast, China's Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) demanded that Land Rover conduct a recall. Within one hour, the company formally announced its recall of 36,451 vehicles.[8]

These events not only negatively impact short-term sales, but also the reputation of the businesses and the products brands they sell. For these reasons, companies marketing consumer products in China should Beware the Ides of March, and be well-prepared in the weeks ahead!