What do China’s new online advertising rules mean for marketers?

SAIC_Tmall_promotions_Featured Image

China will introduce far reaching online advertising regulations from September 1. These are expected to impact all digital marketing channels from search, ecommerce, email, social media and some elements of programmatic buying. 

The comprehensive list of guidelines was issued by China’s State Administration for Industry and Commerce in early July. It defines online advertising as any link, image or content aimed at promoting products or services on a search engine, ecommerce or social platform.

From September, online advertisements for prescription medicine and tobacco will be banned. Online ads for medical supplies, pesticides, veterinary medicine and other health products will need government approval.

Other key changes include:

  • Paid search results must be clearly identified as ads.
  • Paid links or content that are advertisements must be clearly labeled as such.
  • Adequate options must be provided for users to close an ad (such as a popup).
  • Users should not be pushed into clicking on a paid link or content.
  • Permissions must be sought prior to attaching ads or promotional links to an email.
  • Misleading and fake ads are now deemed illegal.

Faith Gao, programmatic director, Performics, says the strict regulations will be good news for marketers and the industry over the long-term.

“The government is trying to get a hold of a fast-moving segment of the internet. This new move will create a more transparent business environment for major players and will lead to a more favorable development of the industry,” Gao says.

“There will be a short period where advertisers will suffer from the format change, some performance fluctuation, but we do think [these changes] will provide a more transparent environment for our clients,” she says.

The regulations are seen in part as a reaction to the death of a Chinese student in April. He died after using an experimental cancer treatment he had found during a Baidu search – unaware it was a paid search ad. As a result of a government inquiry, Baidu was forced to introduce a number of changes to its search results ranking system. These include paid-for promotions not consisting of more than 30% of search results per page and preventing unauthorized companies from being promoted.

“The student’s death served as a wake-up call for the government, creating pressure to speed up the legislative process regarding online ads,” says Choy Yiu Chan, attorney-at-law
local partner, Bonnard Lawson.

A clean up of the industry has been necessary for some time, since China has lacked regulation around online advertisements, app advertisements, and sponsored search results, Chan adds.

The new rules impact all online publishers with a presence in China, including ecommerce sites, search engines and programmatic advertising. Here’s an overview of the anticipated impact based on a report from Performics.

1. Ecommerce

Vocabulary on ecommerce sites such as “recommended products”, “HOT”, “our selection”, have in the past, not required any formal labelling as advertisements.

This will change under the new rules. Invoicing will also need to clearly reflect such services from being “technical servicing fees” to “advertising”.

Here are examples of current promotions on C2C ecommerce platform Taobao. All of these ‘ads’ will require clearer advertising labels once the new regulations come into effect.

SAIC_Perfromics report_Taobao content_600

*Flashy ‘promotions’ on China’s C2C ecommerce platform Taobao (Publicis Media / Performics)

2. Search engines

Currently, Chinese search engines keep search page results looking “informational” by listing paid search results as a “promotion”, says the Performics report. Under the new regulations, “promotion” will need to be changed to “ad”.

Here is what a search for Australian milk currently brings up on Baidu, including the top three ‘promotional’ listings.

SAIC_Baidu_Australian milk search_600

“For Baidu search engine paid results, and ‘recommended products’ on ecommerce platforms, the argument has been whether these are advertisements or not. Now it will be clearly stated,” says Gao.

3. Programmatic buying

Under the new rules, a demand side platform will need to indicate the source of any ads purchased through programmatic buys.

Here, Performics expects China’s programmatic solution to be similar to practices in other markets. Such as this example showing how it is currently done by Google.

SAIC_Performics_Programmatic_Google_600

*Programmatic ad delivery with Google Ads (Publicis Media / Performics)

Conclusion

To prepare for these changes, ecommerce sites and publishers will be required to hire specialists to review all ads in a form of self-censorship.

Bonnard Lawson’s Chan says the new rules will probably limit the online ad space, and in turn, drive up ad prices of search engine providers.

“Baidu’s main source of revenue stems from online marketing services. Internet companies will now have to reorganize staff to monitor ad content according to the more stringent guidelines,” Chan says.

Content marketing won’t be as affected but any material containing paid advertising will need to be clearly labeled. E-mail, embedded links, displayed images and videos all fall into the reach of the new legislation if they are a form of online advertising.

Consequences for contravening regulations include administrative sanctions such as the confiscation of illegal gains and penalties of up to three times the illegal gain. Companies should therefore consider holding funds in reserve to counter any claims, says Chan.

Whether people believe the consumer should take more responsibility in being informed and practicing caution, the prevalence of the internet in everyone’s daily lives suggests that measures need to be taken to make internet companies more aware of their social responsibilities, she adds.

International companies are already used to working within regulatory confines, and China’s local industry is now catching up. It will force marketers to create better ads rather than relying on deceiving consumers with misleading appearances in search results, says Chan. “Branding, marketing and advertising will have to find other creative ways to expose products. This is a good development and the regulation is needed.”

**Do you want to learn more about the Chinese market? Join us at ClickZ Live Shanghai on September 19-21 where local and international brands operating in China will share their digital marketing experiences and case studies for this lucrative, innovative and dynamic market.

*Featured image: Screenshot from the homepage of Tmall.com.

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