1. E-commerce in China
A new channel of distribution and its potentialities
&
Chinese expansion in the EU: Introduction
Beijing
Peking University
April 29, 2015
Speaker
Cristiano Rizzi
Zhonglun W&D Law Firm

2. Zhonglun W&D Law Firm & Cristiano Rizzi
 Zhonglun W&D Law Firm
 (www.zhonglunwende.com). The multi-national and multi-lingual nature
of our team consisting of more than 500 lawyers and employees enables
us to provide streamlined first-class legal service to our diversified
Chinese and overseas clients.
 11 Offices in China, with a presence in the EU and Asia
 Cristiano Rizzi:
 Already 9 years of experience “on the ground” in China.
 Sole author of the book titled “E-commerce Law In China” by Wolters
Kluwer;
 Of Counsel, and sole Representative of Zhonglun W&D Law Firm in
Italy.

3. E-commerce Law in China
The Functioning of e-commerce in China and the Influence of the EU model
(Wolters Kluwer – Law & Business, September 2013)

4. Mergers and Acquisitions and Takeovers in China
(Wolters Kluwer – Law & Business, July 2012)

5.  To succeed in China it is best to "know where you wish to wind up BEFORE
you begin.”
 Build a strong corporate base, build in a system of checks and balance,
manage risk, build finical controls and corporate governance;
 FIE "Winners" in China business clearly identify their goals, short term,
medium term and long term. Our goal as a China legal adviser is to help you
reach those goals as your "business partner".
 A good China legal adviser answers the clients questions, but also tells
clients the questions (and answers to those questions) as well;
 This is trickier than in other jurisdictions:
 Not only enterprises have to understand the legal framework, but also
the environment in which they are doing business.
 IP granted rights, know-how protection, repartition of funds is all
intertwined one misstep creates a break-down and thwarts success.
 This aspect is of particular crucial importance for e-commerce in China
Preliminary observations

6. Doing business in China:
The importance of becoming familiar with Chinese culture
 One of the challenges foreign investors face when structuring an investment is
navigating its framework of laws that govern business in China;
 China is completely a new environment and investor(s) has to adapt to this new
(business) environment;
 China MUST be understood (before to structure your investment):
 Only if you know your counterpart and know yourself, you need not fear the
result of your (business) adventure and you will succeed, otherwise if you
know yourself but not your partner, for every victory gained you will also suffer
a defeat, and if you know neither the enemy nor yourself, you will succumb in
every battle (i.e. business adventure).
Sun Tzu (The Art of War)
 Doing business in China could be challenging:
 Become more familiar with the legal and cultural environment is a must!
Chinese sayings:
 书到用时方恨少 shū dào yòng shí fāng hèn shǎo: It is when you are using what
you have learned from books that you wish you had read more.

7. China: dimension of the internal market

8. The change towards a more consumption driven economy
Current situation in China
 For years China has relied on an export oriented economy to create its
amazing GDP growth.
 While China has made great progress under such an economic structure the
worldwide economic crisis clearly showed that lagging demand for Chinese
goods can put China at the mercy of external factors that are hard to plan
for.
China's export-driven economic growth is unsustainable
(This model is not valid anymore)
 This is why the new five year plan (2011-2015) is focused on making
domestic consumption a larger driver in Chinese GDP growth.
 E-commerce represents the new channel of distribution and a pillar to
sustain internal consumption
 The government expects to sustain the local economy through e-commerce

9. Obstacles to business in China
 When investing in China it is necessary to keep in mind differences in
culture:
 They can derail a business transaction in China just as easily as not
following correct legal procedures!
 In China a business transaction should not just consist of a foreign
business sending lawyers to review a contract, sign some papers and
take some photos
 Instead, you need to build 'guanxi', a relationship, that is personal and
builds trust
 In the current situation in China were laws are sometimes not uniformly
enforced guanxi relationship building is key to not only accessing valuable
information but also to finding a way around obstacles
 It is necessary to remember that you can not replicate your business
here in China as conducted in your home country
 Success will come for those that don't just think local, but also act local
 “When in Rome do as the Romans do” 入乡随俗 (rù xiāng suí sú)

10. Classical instruments at the disposal of the foreign investor
(Different forms of investments)
 In which form FDI substantiate themselves?
 Representative Office
 Branch
 Equity Joint Venture
 Contractual Joint Venture
 Wholly Foreign Owned Enterprise
 Foreign Company Limited by Shares
 Foreign Trade Companies
 Foreign Invested Commercial Enterprises (FICE)
The future of retail sector in China: E-commerce

11. Understanding the context for e-commerce
 China has about 570 million Internet users:
 The world’s largest Internet population
 More than 240 million are shopping on-line (mid 2013)
Report by the “China Internet Network Information Center” CNNIC (Jan. 2013)
 The Internet population is expected to exceed 700 million by 2020
 It is expected that more than 50% (350 million Internet users) will buy products on-line
 1.000.000.000 Mobile Users –Still growing.
 420.000.000 web access through smart devices
 E-commerce is expected to grow rapidly in China:
 The Chinese government expects trade on e-commerce platforms to hit 18 trillion yuan (2.86
trillion US$) by 2015!
 The so called e-commerce represents one of the key strategies to expand or to accelerate the
sales in China.
 Small, medium-sized and big enterprises can trade their products and services efficiently through
e-commerce
 China is the Asia’s top market for electronic retail, and e-commerce sales
are set to grow 20,41% annually to reach $356 billion in 2016.
 However, approximately 40% only of on-line Chinese consumers shop through the Internet today:
 This represents an enormous opportunity and afield to cultivate for businesses wishing to size a
chance to grow in the most promising market in the world

12. E-commerce a new way to penetrate the Chinese market
(definition of e-commerce)
 It is important to understand that there does not exist a widely
accepted and precise definition of e-commerce.
 Chinese legislator is trying to put in place a more precise legislation, but so
far did not provide for a specific definition of “e-commerce”.
 A comprehensive e-commerce law should be ready by the end of 2016
 E-commerce = “doing business over the Internet”
 Selling goods and services which are delivered off-line as well as products
which can be ‘digitised’ and delivered on-line, such as computer software.

13. Why Chinese consumers shop online
 1/5th
World Internet users are Chinese.
 In 2010 “only” 23% of China Urban population shopped online:
 this figure will go up to 44% by 2015.
 By 2015 e-commerce will represent 7,4% of China’s total retail value.
 Why Chinese consumers shop online?
 Anytime shopping 28%
 Low price 25%
 Convenience 18%
 Easy to compare 7%
 More choice 4%
 Free delivery 1%
 This iis changing: Average shipping cost in China: $ 1 for 1 kg, average shipping cost in
USA: $ 6 for 1 kg
 Detailed product information 1%
 Easier to find favorite brand 1%

14. The ICP license
 E-commerce may help to expand sales in this market but the legal
environment regulating it poses some obstacles.
 The legal framework regulating the online sales in China is extremely vast and
complicated.
 In order to Operate an e-commerce platform it is necessary to obtain the so called
Internet Content Provider License
 Internet Content Provider License also known as ICP License or 备案 (Bei
An), is a permit issued by the Chinese Ministry of Industry & Information to
allow internet website (i.e. e-commerce platform) to legally operate in China
mainland.
 Each websites hosted in China must have its own ICP license, but if your website is
hosted in Hong Kong, Macau or Taiwan you don't need to apply for a license .

15. Different models of e-commerce
 E-commerce has developed and diversified into several categories, namely:
 B2B (Business-to-Business): under this category companies do business with
each other such as manufacturers selling to distributors or wholesalers selling to
retailers. Price is based on quantity of order and it is often negotiable.
 B2C (Business-to-Consumer): it means businesses selling to the general public
typically through catalogues utilizing shopping cart software. This category usually
represents what the general public has in mind with regards to e-commerce.
 C2C (Consumer-to-Consumer): in this case we are talking about on-line auctions
(such as eBay), and other sites where individuals can buy and sell a series of
different objects, thanks to on-line payment systems.
 C2B (Consumer-to-Business): this category is not so developed as the other three
mentioned above, but it is also a form of electronic transaction in which a consumer
posts his/her project or ideas and then this person is contacted by companies
interested in completing the project (roughly, a precise definition does not exist).
 E-commerce in China covers all these aspects

16. Different methods for a business to sell online
Modalities to operate a “virtual shop”
1. Standalone web-site outside of China:
 This method consists of operating your virtual shop on a server located abroad;
 This structure is not subject to the Chinese ICP requirements since it is deemed the services
are not provided within the territory of China (but the website could be blocked).
1. Standalone web-site in China:
 On-line sales via a website established in China, though may overcome many difficulties, such
as delivery and after sales service (presuming that the company’s operation are also based in
China), this method gives rise to the cost of setting up and maintaining a separate site in
China
1. Third-party platform outside of China:
 This would represent the cheapest option, but not the most effective one. In fact, Chinese on-
line consumers already have at their disposal some of the most dynamic e-commerce web-
sites and their preferences are orientated towards these sites (e.g. Tmall, Alibaba, Taobao).
1. Third-party platform inside China:
 A company has the possibility to set up its virtual shop, thus conducting its own on-line sales,
on a platform of a local e-commerce operator.
 In general, there are no restrictions for foreign companies to sell on-line in China through a
third-party platform. Each platform has its own specific requirements concerning its sellers,
such as requesting sellers to have their own registered company in China.

17. Structuring an online shop in China
 The most used platform for B2C in China is Tmall
(Alibaba group)
 Tmall, formerly Taobao Mall, the largest B”C platform for online
retailers in China
 Two ways to start a Tmall store:
 License your brand to an e-commerce/Tmall operation team;
 Open directly on Tmall getting help on store design, marketing and
customer service from IT expert in the sector.

18. Qualifications
What requirement should you know?
 Qualification for International Brands:
You are a registered company outside China
You are a certified retail/trading company
The product(s) is your own brand or licensed, with
purchase invoice

19. Preferred Tmall Retailers
(Smaller retailers are present in any case)
 Retailers who are in operation for over 2 years with
over USD 20 million annual return;
 Large and well known B2C websites;
 Brand owners or agents with licensed brands;
 Preferred categories: babies and kids products,
healthcare products, apparels and clothing, shoes and
bags;
 International well known brands

20. Requirements for products
• All products must join Tmall’s genuine product protection
agreement; products produced or being sold overseas
should be delivered by international logistic company via
proper custom channels;
• Product pages on Tmall should be in Chinese, with
international metric measurements;
• Products should be shipped within 72 hours once buyers
complete the transaction via individual package or China
free trade zone providing package tracking information;
• Products return location must be arranged within
mainland China

21. Set-up cost
Costs you should be aware of setting up Tmall store
• The set-up cost includes:
• Deposit USD 25 K
• Store design USD 1K-3K
• Annual fee of USD 5K/10K
• On going cost:
• Technical service charge 5%or 6% of online sales
• Marketing cost (variable)
• Other:
• Outsourced online customer service (variable)
• Analytics software (can be provided by a third party –variable)
• Packaging and delivery cost

22. Tmall online store setup
Submit required info (10 days)
 Submit company and products information and wait for about 10
working days for verification
Register Alipay account (7-10 days)
Sign agreement and pay deposit and annual fee
(7-10 days)
Register Tmall account and upload company
product info
Lunch online store

23. E-commerce in Cina: concluding contracts in the on-line
 Contracts concluded over the Internet in China have to be governed by
Chinese Law and the main reference is the Contract Law.
• The primary sources are the articles on the formation of the contract contained in the
Contract Law.
 A common misunderstanding is to think that contracts in cyberspace
(concluded on the Internet) are unregulated,
• this is not the case, and the general rules, governing a particular type of contract in
the off-line world, will apply.
• Reference must be done to the Contract Law.
 According to article 13 of the Contract Law “parties shall conclude their
contract by the method of offer and acceptance” and parties may
conclude their contract in writing, orally or in another form.

24. E-Commerce Law in China: Online payments in China
 The number of users and utilization ratio of online payment were 221 million
and 39.1% respectively by December 2012.
 There was a growth of 53.89 million, or 32.3%, in the number of users of online
payment compared with 2011.
 Credit cards and debit cards represent the major instruments for the realization of e-
payments:
 These two means are the incarnation of e-money. Other payment systems to be
classified in this category include pre-paid cards and specialist payment transfer
providers.
 The number of mobile online payment users reached 55.31 million by
December 2012, and the annual growth rate of users was 80.9% and utilization
ratio of mobile online payment was 13.2%.
 UnionPay has become the central and pitoval part of China’s bankcard industry
and for its development.
 The UnionPay association has formulated “guidelines for on-line payments:
 “Guidelines” which shall be interpreted and amended by the People’s Bank of China (i.e. the
Central Bank of China) are formulated for the purpose of regulating and guiding the sound
development of electronic payment, protecting the lawful rights and interests of the parties
concerned.

25. How does international companies receive the payment from China
Internet customers?
 How does international companies get paied?
When the buyer has completed the payment,
the amount will be allocated to a partner
settlement bank for currency exchange, and
then the payment amount will be remitted into
the seller's international bank account once the
agreed settlement amount or settlement time is
met.

26. E-commerce law in China: e-payments

27. Privacy and data protection: general introduction
 China does not currently have a comprehensive legal framework to
regulate the collection, (including process and retain) and disclosure of
personal data:
• The Chinese legislator, especially with the growing importance of e-commerce, is
implementing a new legal framework to regulate the protection of these information.
 Offline dimension:
 The right to privacy is upheld in principle by the Constitution of the People's
Republic of China and in the Civil Law Principles.
 Online dimension:
 On December 28, 2012 the National People’s Congress (NPC), approved a new set
of rules i.e. Decision concerning Strengthening Network Information Protection
to enhance the protection of personal information online and safeguard public
interests:
 This decision on strengthening on-line information protection highlights the interest of the
Chinese legislator towards this new means, which allows the expansion of business
activities.

28. The phenomenon of 11.11
 Alibaba attracted more than 400 million visitors on Singles’ Day (11.11)
the equivalent of more than two-third of China’s entire Internet using
population.
 About one-fifth of all orders were made using smart devices!
 Created five years ago by e-commerce giant Alibaba Group
Holding Ltd, ended with its customer-to-customer marketplace
Taobao and business-to-customer site Tmall ringing up 36.2
billion yuan ($6 billion aprox) in sales over the 24-hour period last
year (2013) and hit a record of 57.1 billion yan ($9.35 billion
aprox.) in 2014
 The Nov 11 event has ballooned into a flagship event under the
Alibaba brand, so that consumers and vendors alike tend to prioritize
their choices at Taobao and Tmall instead of on other e-commerce
platforms.
 Premier Li Keqiang praised the e-commerce giant for generating the consumption-
stimulating shopping spree. (It is one of the target of the Five Years Plan).

29. Top 7 figures to mark Alibaba Singles’Day shopping spree
 57.1 billion yuan
 Online sales on Alibaba's Tmall.com, Taobao.com and its overseas outlets, topped 5
7.1 billion yuan ($9.34 billion) onTuesday, beating Tmall and Taobao's combined 201
3 Singles' Day sales of 36.2 billion yuan.
 42.6%
 42.6 percent of sales were made through mobile devices, with a minor gap to PCs.
 217
 This year is the first time Alibaba chose to launch its Singles' Day campaign on both it
s domestic and overseas platforms.
 278.5 million
 There were 278.5 million logistics orders generated during the 2014 event.
 More than 27,000
 This year, more than 27,000 brands and merchants participated in the event,
 Two minutes
 Within two minutes after the start of the online shopping spree, the gross
merchandise volume exceeded 1 billion yuan.
 2.85 million
 At peak, 2.85 million transactions were processed per minute by Alipay.

30.  The CNNIC (under the supervision and direction of the Ministry of
Information and Industry) which was founded as a non-profit
organization on June 3rd
1997 is the body designated to provide:
 Guidance for the registration of domain names here in China (for the identification of
a particular business) and
 It also provides assistance in case a dispute arise in registering domain names.
Some of its main functions are:
 Domain Name Registry Service
 Catalogue Database Service
 Technical Researches on Internet Addressing
 Internet Survey and Relevant Information Services
 International Liaison and Policy Research
 Secretariat of the Internet Policy and Resource Committee, Internet Society of China (ISC)
 The aim of the committee is to stand on a forward position of the Internet
development; actively participate in the research work on the domestic Internet
development and administration policies; provide policy and legislation oriented
suggestions to promote the healthy growth of China’s Internet
The role of the China Internet Network Information Center (CNNIC)

31. E-commerce in China
Final considerations
 This electronic medium offers many possibilities and advantages:
 Reduced operational cost;
 Increased efficiency due to increased precision and speed;
 Access to local, national, or international markets;
 It allows personalised products and services to be offered;
 It allows specialised marketing due to the many databases available.
 E-commerce in China is booming.
 Over 700 million Internet users by 2020
 It is estimated that in 2020 there will be 350 million online shoppers
 The so called e-commerce represents one of the key strategies to
expand or to accelerate the sales in China.
 Small, medium-sized and big enterprises can trade their products and
services efficiently through e-commerce.
By 2015 e-commerce will represent 7,4% of China’s total retail value.

32. Chinese Outbound Direct Investments
and the “going out” policy
 From 1999 to 2010 China saw its Outbound Direct Investment
(ODI) jump from roughly USD 1 billion to over USD 60 billion
 China is pushing its “going out” policy to play a major role at
international level
 In order to allocate its enormous resources China is investing
havely in natural resources and other industry abroad
 Promoting your company to potential Chinese investors (i.e.
Companies expanding their presence abroad) is another way to
relate your business to the Chinese market

33. Chinese expansion into the EU market: intro
 The EU has become the preferential recipient of Chinese
Outbound Direct Investments (ODI);
 China is looking for business opportunity outside its territory
(also to ensure supply of raw materials). See for example the
“new colonization” of Africa;
 China is going global with ODI;
 ODI set to become more diverse;
 Chinese “centers of power” determine ODIs.

34. Strategies and policies to attract Chinese investors in the EU
 How to pave the way for attracting more Chinese ODI?
 The proposed EU-China investment agreement (introduction)
 European perspective
 Chinese perspective
 Questions to be solved:
 Adequate protection of investments
 A more predictable business environment
 Balance between political influence and amount of Chinese ODI:
• The role of China will growth (politically and economically) ;
• This also will depend on how China will implement its recent reforms;
• The importance of the revaluation of the RMB.

35. A sustainable development: a priority
 Why “green” development?
 Green development as a source of growth
 Advantages in moving toward a green development.
 Achieving mutually beneficial relations with the rest of the World.
 Resources are limited: implementing a new sustainable growth
model will benefit not only China.
 China will play a fundamental role for policies concerning the
environment.

36. Industries targeted by Chinese investors
 Sectoral distribution of Chinese ODI in the EU:
 Focus on technology
 Energy and environment
 Research & development & innovation
 Service sectors
 Manufacturing
 Importance of the protection of IP rights.
 Launch of the new EU-China Intellectual Property Cooperation in Beijing
(16/01/2014)
 The EU and China kick off celebration for 40th
anniversary of
diplomatic relations.

37. Thank you
Cristiano Rizzi
好事多磨
(hao3 shi4 duo1 mo2)
The road towards happiness is strewn with setbacks