China: China Focus – September 2016

Last Updated: 16 October 2016
Article by Mark Ray

Sovereign China has recently updated its China Market Entry Handbook. You can download the PDF here

Online Advertising in China – Regulations Commencing

China's e-commerce market has exploded in recent years becoming the world's largest e-commerce market. This growth is expected to continue and the market size is expected to reach US$ 1 trillion by 2019. Consequently, online advertising has now surpassed traditional advertising in terms of ad spending.

This exceptional growth has not been without controversy however; concerns about issues such as content control, fraud, and privacy protection have pushed the government towards strengthening the oversight of this previously minimally regulated market. In an attempt to exert more control over online advertising, the State Administration of Industry and Commerce (SAIC) issued the Interim Measures for the Administration of Internet Advertising on 4 July 2016, and took effect on September 1, 2016. One of the drivers for these measures was the well-publicised case involving search engine giant Baidu, in which a young man died after procuring cancer medicine of questionable efficacy online. With the enactment of the new measures the authorities hope to cut down on fraudulent and misleading activity while increasing transparency. The new rules will have a wide-ranging effect with "internet advertising" covering a broad scope ranging from websites and Internet applications to email advertisements.

Some of the main points surrounding the new measures include:

  • Paid ads must be clearly identified;
  • Ad results are limited to 30% of total search results;
  • Ads must not be deceptive or misleading;
  • Users should have the ability to close a paid ad with one click;
  • Ads should not negatively impact on user experience; and
  • Email ads should be clearly identified as such, allowing the customer to choose whether to open the ad or not.

In addition to the above general points there are particular restrictions on the online advertising of a number of specific items. The advertising of tobacco products and prescription medication is explicitly banned while providers of medical supplies and other veterinary and health products need to seek government approval for any online ads. Failure to comply with the new guidelines will see companies facing fines of between RMB 5,000 and RMB 30,000.

Digital ad spending in China is now in the region of US $40 billion. It was inevitable that the industry would come to face extra scrutiny and oversight in China. As is often the case with newly issued guidelines and regulations in China, some items remain unclear and possibly open to interpretation. Some experts anticipate a short-term drop in online ad revenues as a result of the new measures. In general the attempts to protect consumers from unscrupulous advertisers are to be welcomed. It will take some time to accurately gauge the effects of these new rules so it is advisable to keep up to date on any new developments.

Foreign invested enterprises will likely experience additional scrutiny from regulators. Therefore, they should be working with a qualified advertising partner for all their advertising needs, including new advertising platforms such as Wechat advertising, one of China's leading mobile social media platforms.

Unification of working permits for foreigners – where do you fit in?

On Friday, 2 September 2016, China Daily broke the news that the government will be launching a new pilot programme to unify work permits for foreigners. Under the current system there are two kinds of work permits. One is the "employment licence" issued by the Ministry of Human Resources; the other is the "expert work permit" issued by the State Administration of Foreign Experts. In the new pilot system the two permits will be unified into a single type of work permit. The main reasons given for this policy change are: 1) the working permit will be easier and faster for overseas talent to obtain; and 2) China will be able to attract more highly skilled foreigners to help with China's development.

Under the new programme, a point system will be introduced that will grade each foreign application and determine if they are considered a talent needed for China's growth. The new policy will rank foreign workers into three categories: A, B and C, based on their points score. The categories have been vaguely defined as follows:

A: Top talent
B: Professional talent
C: Unskilled workers or those working in the service industry

A Chinese report published on the State Administration of Foreign Experts Affairs repeatedly mentions the catchphrase "Encourage the High End, Limit the Ordinary, Restrict the Low End" (鼓励高端、控制一般、限制低端) in reference to the new policy. This phrase provides some insights into the possible intent of the new regulations.

As with many pilot programmes initiated in China, it will take time before the efficacy (and the true intent) of the programme is clear. As a foreign invested company in China with foreign employees, it is important to understand how these changes may affect you and your staff. If working with a third party agent to obtain a working visa for your staff, make sure they also understand the implications of the new policy. For now, we will need to wait and see what impact this policy will have.

Low Cost Service Providers – are they worth the "cost"?

Recent articles in our China Focus newsletter have focused on identifying and working with partners in China. Partners range from corporate service providers, to importers, to distributors, among others. This article focuses on the hidden cost of low-cost service providers, such as outsourced accounting or HR services.

For many small and medium-sized enterprises, cost is an important factor when deciding how to manage support functions required to operate a company, such as accounting and HR payroll benefits. Effectively, there are two options for companies: 1) outsource to a third party service provider(s); or 2) hire an in-house employee. Both options can be effective if done properly, but what happens if a low cost service provider is chosen or a less-than qualified (low cost) employee is hired? What are the risks? What is the real cost?

Below we will discuss the potential risks and costs of engaging low cost service providers, specifically accounting services, but much of what is said can be applied to HR services as well.

Service providers are typically separated into three tiers:

  1. Large international firms;
  2. Mid-level foreign invested firms;
  3. Local firms (including "micro-firms" and freelancers).

Large international firms tend to be extremely expensive for the services they provide and there is little variance in the price between companies. However, in the mid-level foreign invested firm and local firm category, the pricing spectrum can range from what some would consider expensive (but still less than the large international firms) to extremely cheap. This massive pricing difference can make it extremely difficult for a company to decide on which service provider to choose. After all, you don't want to pay an arm and a leg for a service you can get for much less, and a high price does not necessarily mean good service (but a very low price almost certainly guarantees that lack of it).

Low cost service providers are usually, but not always, local firms. They are typically able to offer their clients below market rates for their services, which on the surface seem like an amazing deal. However, as the saying goes, if something is too good to be true, it probably is.

Some of the ways low cost service providers can offer extremely low rates include, but are not limited to, the following:

Paying employees illegally

China has strict labour laws that require individual income taxes and social benefits to be paid on an employee's full gross income. This can make the cost of the employee to the company 40% or more of an employee's gross salary. To avoid this, companies will pay employees a very low salary and then make up the salary gap with a cash payment. This is an illegal practice and opens the service provider up to various risks – from disgruntled employees seeking legal remedies to the tax bureau investigating unpaid taxes and social benefit payments.

Overburdening staff

Accounting and HR services both require careful attention to detail and minor mistakes can be extremely costly to a company. Giving employees too large a case load will increase the chances of errors occurring and possibly encourage the employees to cut corners in order to finish their work. Errors and omissions can be extremely costly for a company to rectify once found. This is something to beware of, regardless of the service provider, although it generally occurs more frequently with low cost providers.

Not accepting responsibility

Even when not overburdened, accountants and employees are only human. Errors can be made. If an error occurs, will a low-cost service provider accept responsibility for its mistake? A reputable service provider will be accountable for the actions of their employees and take responsibility. They will also typically have processes in place to minimise the potential for errors to occur.

Receiving kickbacks!

Perhaps the most common way for low-cost providers to offer extremely low rates is to subsidies their fees through kickbacks from the local tax bureau based on the amount of tax revenue collected (yes, you read it correctly). In some cases, the local tax bureau will pay the service provider a percentage of the amount of taxes collected. This encourages the accounting service provide to manipulate the book so that you pay more tax!

Case Example

A foreign invested enterprise located in a second tier city near Shanghai, has been using a low-cost outsourced service provider for their tax and accounting needs for many years. The company is now considering the closure of their office and their lawyer contacted Sovereign for potential assistance. We were informed that when the company's books were reviewed, there were a number of discrepancies and inaccuracies. When these were discussed with the accounting firm, the accountant said that everybody in [city X] does things the same way (this is commonly used in China as a way to deflect mistakes). When asked if this will cause problems with the closure, the accountant said "yes, there will likely be penalties due to non-compliance." Furthermore, it is likely that the low-cost service provider will not take accountability for any fines or penalties incurred due to their misfiling.

It may have cost the company more upfront to file their taxes in a compliant manner, but they would not be facing penalties or delays in the closure of their office.

Shortcuts and other methods low-cost service providers take to offer low fees may never become an issue for their clients – until they do! Besides potentially paying more taxes than necessary, other errors and shortcuts can cause significant problems if you want to close or restructure your company. Furthermore, if your company becomes subject to an audit and errors are found, the fines can be egregious.

To avoid the potential headaches – and costs – it is best to select a reputable service provider that looks out for your best interests. In future issues, we will discuss the steps you should take in selecting the right outsourced service provider.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions