Controlling Deceptive Advertising in China: An Overview

Author(s): Zhihong Gao

Source: Journal of Public Policy & Marketing, Vol. 27, No. 2 (FALL 2008), pp. 165-177
Published by: American Marketing Association
Stable URL: http://www.jstor.org/stable/25651593
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Controlling Deceptive Advertising in China:
An Overview

Zhihong Gao

Deceptive advertising has been a key topic of advertising regulation research. However, the existing
literaturefocuses primarilyon theWestern experience, and practices in developing countries have
received littleattention. As an initial effortto investigate the topic in the context of an emerging
market, this article applies Petty and Kopp's frameworkto examine how China controls deceptive
advertising fromfiveaspects: initiation, interpretation,deception, verification,and remediation. The
author discusses the contradictions in the Chinese system and explores implications for foreign firms
operating inChina.

Keywords-.China, advertising regulation, deception control

Deceptive advertising harms consumer interests,brews This article is organized into four sections: First, it
cynicism, and raises market transaction costs. For reviews the literature on regulation of deceptive advertis
these reasons, countries around the world have been ing. Second, it introduces the historical background of the
making earnest efforts to control it (Boddewyn 1982; Petty Chinese regulatory system. Third, it applies Petty and
1996). The issue has also been a key topic of advertising Kopp's (1995) framework to examine the Chinese control
regulation research over the years. However, the existing of deception. Fourth, it discusses the contradictions in the
literature focuses primarily on theWestern experience, and Chinese system and explores the implications for foreign
practices in developing countries have received little firms operating inChina.
attention.
Research on advertising regulation in developing coun
tries is taking on increasing importance. Notably, emerging LiteratureReview
markets are growing much more rapidly than developed The existing literature on deceptive advertising focuses on
countries (Norris 2006) and now account formost of the practices in developed countries, including the United
States (e.g., Beales 1991; Kinnear and Root 1988; Owen
global ad spending growth (McClellan 2005). Meanwhile,
thesemarkets face an array of locally defined social, politi and Plyler 1991; Petty 1992; Preston 1994; Richards and
cal, and economic challenges in their development, which Preston 1992; Tedlow 1981), the European Union (Greer
often translate into regulatory idiosyncrasies. Because and Thompson 1985; Schmitz 1993), and Canada (Wyck
ham 1996). These writings suggest that each system has its
advertising regulation is a significant environmental factor
in international advertising (Duncan and Ramaprasad own share of controversies, vaguely defined terms, incon
1995), it becomes critical for international advertisers to sistencies, and ineffectiveness, and they testifyto the notion
that advertising regulation is an evolutionary process
acquire a better understanding of the regulatory landscape
in developing markets. shaped by many forces (Boddewyn 1982). Cross-national
As an initial effort to investigate deception regulation in comparisons reveal both similarities and differences among
a developing country, this article examines how China con developed countries in their regulation of deceptive adver
trols deceptive advertising. China is the world's fourth tising, though no systematic differences are found between
common law and civil law traditions (Petty 1996, 1997). To
largest economy (Bradsher 2006) and fifth-largestadvertis
ing market (Madden 2004). Deepened knowledge of the date, however, little research has investigated regulation of
Chinese systemwill not only benefitmarketers interested in deceptive advertising in developing countries.
China but also lend insight into a likely path to harmonizing Defining deceptive advertising has been a primary con
international advertising regulation. cern of scholars and regulators (Carson, Wokutch, and Cox
1985; Gardner 1975; Greer and Thompson 1985). Differ
ences in the various definitions reflect disagreements on
Zhihong Gao isAssistant Professor of Marketing, College of Business what constitutes deception: Should intent to deceive be pre
Administration, Rider University (e-mail: zgao@rider.edu). The sent, and should proof of actual deception be required?
author thanks the three anonymous JPP&M reviewers for their valu Three essential types of deceptive advertising?fraud,
deception, and misleadingness?have
able comments. Thanks also go to Dr. Jean Darian for her help proof been identified
reading the manuscript. Josh Weiner served as associate editor for (Gardner 1975; Russo, Metcalf, and Stephens 1981). There
this article. is evidence that as an advertising market matures, the focus
of deception control shifts from fraud and deception tomis

? 2008, American Marketing Association

ISSN:0743-9156 (print),1547-7207 (electronic) 165 Vol. 27 (2) Fall 2008, 165-177

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All use subject to JSTOR Terms and Conditions
 166 DeceptiveAdvertisinginChina
Controlling
leadingness (Tedlow 1981). Misleading advertising often
deploys tactics such as exaggerated significance, confusing
presentation, promises of proof, omission, and ineffective
qualifications (Petty and Kopp 1995). This article uses the
term "deceptive" categorically to refer to all types.
Mapping the sequence of legal challenges to advertising
in theUnited States, Petty and Kopp (1995) propose a six
"tions" framework?initiation, interpretation,
verification, remediation, and intention?that succinctly
summarizes many contested issues in adjudicating decep
tion.More specifically, initiation is about which institution
functions as the primary source of regulation; industry self
regulation, government regulation, criminal prosecution,
and private lawsuits by competitors and/or consumers are
the common sources of challenges in theWest (Petty 1996,
p. 35). Interpretation deals with the consumer's reading of
the advertisement being challenged, and it often comes
down to questions such as what types of claims constitute
deception and whose interpretation (the regulator's, the
expert's,
or the target consumer's based
research) is reliable (Petty and Kopp 1995). The deception
stage pertains to the standards for condemning deception.
Countries subscribe to varied levels of consumer protec
tion in choosing the likely-to-deceive versus proof-of
actual-deception standard, the gullible-consumer
reasonable-consumer standard, and a low versus
centage of consumers being misled (Petty 1996). Verifica
tion specifies which party bears the burden of proof, the
challenger or the defendant. At the remediation stage,
appropriate remedy or penalty is determined. Intention is
not discussed as a separate stage because it "may impact at
several points of the basic five-stage process" (Petty and
Kopp 1995, p. 43). Adapted applications to developed
countries (Petty 1996, 1997) confirm the robustness of the
framework.
This article applies Petty and Kopp's (1995) framework
to examine the Chinese control of deception. Because
Western readers may be unfamiliar with Chinese advertis
ing, a brief introduction to the historical background is
necessary.
Historical Background
History
Compared with itsWestern counterparts, Chinese advertis
ing has a much shorter history. Commercial advertising
largely disappeared in China during the cultural revolution
and was reinstituted in 1979 (Chu 1982). It experienced
limited growth in the 1980s and did not take off until 1992,
when China formally embraced a market-oriented economy
(Yu and Deng 1999). The total Chinese ad spending
reached 243.95 billion yuan (approximately US$30.12 bil
lion) in 2005, with toiletries, pharmaceuticals, business/
services, food, and real estate as the top categories (CTR
Market Research 2006); the biggest advertisers in terms of
spending included Procter & Gamble, Harbin Pharmaceuti
cal Group, Unilever, Stone Group, Colgate-Palmolive,
China Mobile, Yum Brands, and L'Oreal (Advertising Age
2006). According to the government, there were 84,272
an average of fewer than
registered agencies in 2005, with
each (China Advertising Association
eight employees
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[CAA] 2006). Thus, the Chinese advertising industry con
tinues to be characterized by a large number of practition
ers, limited experience, and intense competition, whereas
Western-style, large agencies represent a small percentage
of the industry (Swanson 1997).
Directly after its reinstitution, Chinese advertising was
plagued by deception issues, which provoked an editorial
deception, piece in The People's Daily (1981) warning that truth
should be the lifeline of advertising. Yet lawmaking to con
trol deception lagged behind at the time. The first national
regulation, Provisional Regulations on theAdministration
of Advertising (China State Council [1982] 1999), was
issued in 1982. A rudimentary regulation less than two
pages in length, itprovided no specific measures for decep
tion control except for emphasizing that advertising should
be clear, truthful,and informative. Issued in 1987 and still
in effect today,Regulations on theAdministration ofAdver
tising (China State Council [1987] 2001) gives deception
control a high priority and lays the foundation of the current
on market Chinese system, though itdoes not define deception or clar
ify the criteria to determine it (Gao 2007a). Chinese law
making dramatically accelerated between 1992 and 2000 as
part of the general legal development to support a market
oriented economy (Peerenboom 2002). Today, embedded in
versus the civil law tradition,China has an elaborate set of adver
high per tising laws and regulations to underpin a government
centered regulation system (Gao 2007b).
Government Regulation
Since 1987, China's State Administration of Industry and
Commerce (SAIC) has been designated by law as the pri
mary government agency in charge of advertising adminis
tration. Some other government agencies also actively par
ticipate in advertising regulation. These agencies can be
roughly divided into two groups: those supervising the
media, such as theMinistry of Culture, the State Adminis
tration of Radio, Film, and Television, and the General
Administration of Press and Publication, and those super
vising the advertised products/services, such as theMinistry
of Health, the State Drug and Food Administration, and the
Ministry of Education. These agencies are authorized to
issue advertising rules and regulations pertaining to specific
media or products under their jurisdictions (Gao 2007b).
They also enforce laws on a specific category of advertising
through a mandatory certification and censorship system.
Under such a system, advertisements for pharmaceuticals,
medical medical services, agricultural chemi
apparatuses,
cals, and food itemswith health benefit claims must be filed
with the relevant government agency for preclearance; only
after being approved and granted their advertising permits
can they be published in the media (National People's
Congress [1994] 2001). An advertising permit includes the
approved ad content, and any departure from the approved
content is considered illegal (SAIC 1998).
Chinese government agencies all operate a hierarchy of
branches at the provincial, county, and municipal level
countrywide. Thus, the system is decentralized, with
enforcement activities conducted primarily by local
branches; only serious cases are handled by provincial and
national agencies (SAIC 1996b). The local Administration
of Industry and Commerce is authorized to administer the

advertising activities of companies and media firms located
within its jurisdiction. When it has doubts about a case, it
can request guidance from the next-higher-level branch.
Self-Regulation
Voluntary self-regulation plays a limited role in theChinese
system. China Advertising Association, the only national
advertising trade organization in the country and an affiliate
of the state, does not monitor compliance or handle com
plaints. Rather, it functions as a liaison between the govern
ment and the advertising industry. It also provides compli
ance consulting services to advertisers and agencies,
charging a fee for reviewing whether an advertisement
violates law (CAA 2007). To an extent, self-regulation in
China takes the form of "mandated self-regulation" (Bod
dewyn 1989) because adverting agencies and media compa
nies are required by law to censor the advertisements under
their commission (SAIC [1996a] 2001).
In summary, theChinese advertising market is still at an
early stage of development. Chinese advertising regulation
adopts a government-centered, layered structurewith lim
ited voluntary self-regulation. It is against this background
thatChina is carrying out its deception control.
The ChineseControlofDeceptive
Advertising
Chinese law governing deceptive advertising falls into two
categories: (1) general national statutes, including Advertis
ingLaw (National People's Congress [1994] 2001), Law on
the Protection of Consumer Rights and Interests (National
People's Congress 1993), and Criminal Law (National
People's Congress 2006), and (2) specific administrative
regulations issued by state agencies to interpretand enforce
the general laws (Gao 2007b).
This section applies Petty and Kopp's (1995) framework
and examines the Chinese control of deception from five
aspects: initiation, interpretation, deception, verification,
and remediation. As mentioned previously, intention is not
covered separately, per Petty and Kopp's (1995) line of
reasoning.
The data for this study consist of current Chinese laws,
regulations, and policy documents. Although not randomly
sampled to be representative of the universe, a limited num
ber of cases published by the government are also cited to
shed light on how theChinese law on deceptive advertising
is interpretedand enforced.
Initiation
Challenges against deceptive advertising inChina are initi
ated by three primary sources?namely, the consumer, the
government, and the competitor. Both administrative and
legal recourses are regularly used to seek remedies.
Consumer
Chinese consumers have threemajor venues to
challenge
deceptive advertising. First, they can file complaints with
China Consumers' Association (CCA). After receiving and
upholding a complaint, the local branch of theCCA where
the complaint is filed firstcontacts the advertiser tomediate
a voluntary settlement.A
quasi-government agency funded
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JournalofPublic Policy& Marketing 167
by the state, the CCA does not have authority to punish
offenses, so it refersunsettled or serious cases to the regula
tor for investigation and punishment (Zhang 2006). Second,
consumers can turndirectly to the local Administration of
Industry and Commerce, whose special unit, Protection of
Consumer Rights and Interests, is dedicated to handling
consumer
complaints.
Third, Chinese consumers can file civil lawsuits against
advertisers, agencies, media, retailers, and other social insti
tutions involved in deceptive advertising (National People's
Congress 1993, [1994] 2001). If they believe that their
complaints to government agencies are not handled ade
quately or in a timelyway, they can also sue the agencies
for administrative inaction.Most recently, a consumer won
his case against Beijing Administration of Industry and
Commerce for failing to punish the parties involved in a
deceptive advertisement aired on China Central Television
(CCTV), and the agency was ordered by the court to inves
tigate the case immediately (Wang v. Beijing Administra
tion of Industry and Commerce 2007).
Civil lawsuits in China are usually tried by the lower
court where the defendant resides, and the courtmust adju
dicate a case within six months after it is filed (National
People's Congress 1991). The judgments and orders of the
second instance are final. Some lower courts have set up
collegiate benches for the protection of consumer rights and
interests, and some apply summary procedures in the first
instance when tryingcases of small claims (CCA 2003).
Government
The Chinese government initiates challenges against decep
tive advertising through both administrative and legal
venues. On the administrative front, in addition to
handling
consumer complaints, the local Administration of Industry
and Commerce regularly monitors advertisements pub
lished by media outlets located in its jurisdiction. When a
possible violation is discovered, the regulator files a chal
lenge against the advertisement, investigates itby collecting
evidence, and, if the violation is verified, issues a "Decision
on Administrative Punishment" to the parties concerned.
Evidence may include copies of the advertisement; confis
cated products; witness accounts; statements by the con
cerned parties; interview transcripts; expert appraisals; and
copies of documents, such as business licenses, advertising
permits, and advertising sales contracts (SAIC 1996b,
article 18).
Formal administrative hearings or trials are not used in
the process to reach decisions. However, in cases of severe
penalties, such as mandatory closures, revocation of busi
ness licenses, and large fines, the defendant is notified of a
pending decision in advance and is entitled to apply for a
formal hearing within three days of receiving the notice,
though the law does not define the term "large fines"
(National People's Congress [1994] 2001, article 42; SAIC
1996b, article 39). Meanwhile, all defendants can dispute a
decision by either applying for an administrative review
with the next-higher-level regulator or filing a civil lawsuit
within 15 days of receiving the decision (National
People's
Congress [1994] 2001, article 48). To enforce its decisions,
the regulator has three options: (1) levying a 3% fine per
day after the defendant misses the deadline for paying the
 168 DeceptiveAdvertisinginChina
Controlling

monetary penalties, (2) confiscating and auctioning the
defendant's assets or freezing its bank accounts to collect
themonetary penalties, and (3) asking the court to enforce
the penalties (National People's Congress 1996, article 51).
To foster transparency and accountability, the regulator
is required to publicize its decisions on administrative pun
ishment.Many local branches operate online databases of
decisions that are open to public access, some of which are
fully searchable. For example, decisions issued by theBei
jing Chongwen District branch all follow a standard format,
listing description of violations, evidence gathered, legal
bases for the punishment, penalties posed, and options for
the defendant to dispute the decision (Beijing Chongwen
Administration of Industry and Commerce 2007). Accord
ing to its database, the branch issued 25 decisions in 2005
and 11 in 2006 to punish deceptive advertising, though it
did not disclose information on the status of penalty
enforcement. Table 1 includes details of the 11 decisions
issued in 2006, which present a snapshot of the typical chal
lenges the Chinese regulator initiates.Notably, three deci
sions in the table originated from a single challenge of an
advertisement for the treatmentof hepatitis B, which led to
separate penalties for the advertiser, the agency, and the
media outlet, respectively.
The Chinese advertising monitoring system is an inten
sive operation. For example, the Beijing branch alone
claims to have monitored 3,797,104 advertisements in 2006
(Beijing Advertising Monitoring Center 2007), which
amounts to more than 10,000 per day. Each of Beijing's
eight urban and suburban districts, inwhich media compa
nies are concentrated, has approximately four or five people
in charge of the program, with one person monitoring an
average of more than 300 advertisements per day (China
Journalism and Communication Review 2006). Text
recognition software systems have been used since 2004 to
automatically spot themost common illegal claims, such as
"number one" or "expert" (Wu 2004).
Nationally, the regulator punished 30,200 cases of decep
tive advertisements in 2005, 16,600 in 2006, and 6104 dur
ing the first half of 2007 (China Industry & Commerce
News 2006; SAIC 2007). These numbers seem to indicate
that the Chinese campaign to crack down on deceptive

Table 1. Administrative Decisions Against Deceptive Advertising Issued by theBeijing Chongwen Branch in 2006

Advertising Advertised
Defendant Media Product Primary Violations Administrative Penalties

Magazine Magazine Real estate A ward-winningand pufferyclaims Confiscation of the income of 5,000
yuan and a fine of 20,000 yuan

Newspaper Newspaper Medical service Discrepancies with thegovernment- Cease-and-desist order,confiscation

approved ad content of the ad income of 20,530 yuan, and
a fineof 7,000 yuan

Jewelrystore In-storedisplay Retail Informationomission about Mandatory correctionand a fineof

promotional offers 3,000 yuan

Wholesaler Posters, Medical apparatus Statisticson effectiveness, Cease-and-desist orderand a fineof

pamphlets discrepancieswith thegovernment- 10,000 yuan
approved ad content

Real estate Billboards, Real estate Claims such as "five minutes1 drive to Cease-and-desist order and a fine of

developer pamphlets Jingjin

Highway" 3,000 yuan
Fashion In-storedisplay Clothing Claim of being "a national brand" and Cease-and-desist order and a fineof
company usingthenamesofgovernment 750 yuan
officials

Ad agency Internet Drug Puffery,discrepancieswith the Cease-and-desist order and a fineof

government-approved ad content 3,000 yuan

Hospital Newspaper Medical service Advertising for the treatment of Cease-and-desist order and a fineof
hepatitisB, which is banned 5,000 yuan

Ad agency Newspaper Medical service Advertising for the treatmentof Confiscation of thead income of
hepatitisB, which is banned; no 9,600 yuan and a fine of 3,000 yuan
government approval

Newspaper Medical service of

Advertising for the treatment Confiscation of thead incomeof
Newspaper
hepatitisB, which is banned 9,600 yuan and a fine of 3,000 yuan

Television Television Medical apparatus Claims about boosting body heightby Cease-and-desist order and a fine of
station 8.9 centimetersin 100 days 369,230.8 yuan

Notes: The U.S. dollar toChinese yuan exchange rate averaged approximately 8.0 in 2006 (Yahoo Finance 2008).

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All use subject to JSTOR Terms and Conditions

advertising is achieving results in the short run. Over the
years, the government has been targeting advertising for
drugs, medical services, food products with health benefits,
and cosmetics, inwhich violations are concentrated (SAIC
2007).
On the legal front, the local branches of theMinistry of
Public Security and China Procuratorate are responsible for
investigating and prosecuting deceptive advertising crimes,
which are often referred to the two agencies by the SAIC.
China's Criminal Law establishes deceptive advertising as a
subcategory of crimes for disruptingmarket order (National
People's Congress 2006, article 222). Deceptive advertising
becomes a crime when (1) the illegal income surpasses
100,000 yuan; (2) the direct consumer financial loss
amounts tomore than 500,000 yuan; (3) the offender has
received more than two administrative penalties for decep
tive advertising before, even if the previously stated
amounts are not reached; or (4) the advertising causes
physical harm to consumers or other serious consequences
(China Supreme Procuratorate 2001, article 67). The cases
of deceptive advertising crimes recorded by Chinacourt.org,
the official legal news Web site approved by China
Supreme People's Court, all involve frauds committed in
advertising to cheat people out of theirmoney; in some
cases, personal and recruitment was
advertising
However, the deceptive advertising crime has not been
consistently enforced. Indeed, media outlets that have
received more than two administrative penalties for decep
tive advertising are never charged with the crime. As a
result, repeat offenses are common among the Chinese
media. For example, of the 18 newspapers monitored by the
Beijing government in 2006, 15 were accused of more than
3 violations, 11 of which had a record of more than 100
alleged violations (Beijing Advertising Monitoring Center
2007).
Competitor
Competitors can file complaints against deception with the
SAIC or seek relief in the civil court. As in the case of
Qingdao Shuanglong v. Jiangxi Jiangzhong (1998), which
is discussed more fully in the next section, media outlets
that carry the alleged deceptive advertising are sometimes
named codefendants in the civil lawsuits filed by competi
tors.The procedure is similar to consumer civil cases, and
the judgments of the second instance are final.
There are no statistics on how many legal challenges are
initiated annually by competitors inChina. Table 2 contains
details of the cases concluded in 2007 and recorded in the
database at lawyee.net, aWeb site associated with Beijing
University that claims to have the largest bank of Chinese
legal cases. The snapshot provided by these cases suggests
that Chinese competitors closely monitor one another's
activities. Their challenges go beyond conventional adver
tising to include competitors' Web page, packaging, and
directmarketing materials, and they often involve claims of
trademark and intellectual property infringement as well.
There is no evidence that these lawsuits were pursued by
the plaintiff to beat down the weak competitor thatmight
not be able to afford the legal fees.
In summary, challenges to deceptive advertising inChina
can be initiated by the consumer, the government, and the
competitor, though the task of adjudicating these challenges
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JournalofPublic Policy& Marketing 169
falls on two primary sources: (1) the SAIC and its branches
through the administrative process and (2) the court through
the legal process. As discussed subsequently, these two
sources do not always follow the same standards in adjudi
cating deception.
Interpretation
China adopts a very broad definition of advertising and
considers product labels, packaging, and manuals all adver
tisements (SAIC 1998, pp. 76-77). Public notices by indi
viduals or companies are sometimes treated as advertise
ments as well (Qingdao Shuanglong v. Jiangxi Jiangzhong
1998). Chinese advertising law does not articulate a clear
definition of deceptive advertising. Thus, interpretation
largely relies on the personal understanding of individual
judges and officials involved, and extrinsic evidence is not
In recent years, the term xujia
required (Mo 2007).
xuanchuan has been used interchangeably to mean both
"deceptive promotion" and "deceptive advertising" inmany
Chinese legal contexts. Deceptive promotion covers both
advertising and nonadvertising promotional activities, such
as press releases, product information pamphlets, product
exhibits, sales promotions, and media publicity (Yu and
Sun 2004).
used. Fraud and explicit claims occupy a high priority on the
Chinese regulator's agenda. In responding to a local
branch's inquiry on how to determine deceptive advertis
ing, the SAIC ([1993] 2001) recommended two criteria: (1)
whether the advertised product or service itself is real and
(2) whether primary advertising claims about product func
tions, efficacy, trademarks, awards, and information of the
manufacturer or service provider are true.Using these crite
ria, the regulator can easily find some global brands' adver
tising claims deceptive because of exaggerations and
absolute guarantees about product function (Beijing Busi
ness News 2007; Wang 2005). For example, Procter &
Gamble was fined by the regulator in Shanghai for the
"dandruffwon't come back" promise in itsHead & Shoul
ders shampoo advertisements; the regulator argued that
dandruff is a natural product of human metabolism, and it is
impossible tomake it completely disappear (Beijing Busi
ness News 2007).
Chinese advertising regulations attempt to enforce
absolute truth in advertising by minimizing circumstantial
claims. For example, when talking about the convenience
of a location, real estate advertising is required to cite the
actual distance between the advertised property and a
referredpoint of interest rather than traveling time between
the two points because traveling time is circumstantial,
depending on many conditions, such as weather, trafficon
the road, and means of transportation (SAIC 1998, p. 154).
Accordingly, an advertisement that claims "five minutes to
the subway station" is considered misleading. For the same
reason, regulations on advertising for pharmaceutical prod
ucts, medical services, agricultural chemicals, and food
with health benefits categorically ban techniques such as
subjective claims, statistics, cure rates, testimonials, guar
antees, and comparisons (Gao 2007b). According to the
regulator, statistics are considered misleading because sta
tistical differences may reflect differences in research
design rather than real differences in the actual effect of the
products concerned (SAIC 1998).
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violation andcompensation
ofInfavor
ofthedefendant
Shanghai
Zhangxiaoquan Packaging Trademark
infringement, Ceaseviolation unfair
Yangzhou Qingling infringement, unfairandcompensation
ofIndefendant
favor
ofthedefendant agreeing to remove the claim
unfair

competition
the 40,000 yuan
product
trademarked
v. Hangzhou 121,000
yuan
competition

Beijing Sihai Hongda 200,000 yuan

competition

Table
2. Competitor-Initiated
LawsuitsDeceptive Advertising
Concluded
in2007
W Notes: The U.S. dollar to Chinese yuan exchange rate
approximately 7.6
Against
averaged

o_
-.?_-,-
0_

Zhangxiaoquan

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All use subject to JSTOR Terms and Conditions

In interpreting the law on unfair competition, the Court
lists three types of misrepresentations that are false and
unfair and consequently constitute deceptive advertising:
(1) making partial, incomplete representation or comparison
of a product; (2) citing scientifically inconclusive views or
phenomena as if theywere conclusive to promote a prod
uct; and (3) using misleading language or othermethods to
promote a product (China Supreme People's Court 2007,
article 8). This interpretation corresponds closely to the
types of implied misleading claims that Petty and Kopp
(1995) identify, including omission and ineffective qualifi
cations, promises of proof, exaggerated significance, and
confusing presentation. Decisions on both administrative
and legal cases suggest that the Chinese regulator fre
quently punishes these misleading tactics (e.g., Qingdao
Shuanglong v. Jiangxi Jiangzhong 1998; SAIC 1998).
The Chinese regulator does not require literal falsehood
in interpretingdeceptive advertising. Indeed, itbelieves that
misleading advertising is not necessarily false (SAIC 1998,
p. 169). For example, in Qingdao Shuanglong v. Jiangxi
Jiangzhong (1998), the defendant's drug approval was
granted by theMinistry of Health, and the plaintiff's com
peting drug was approved by the Shandong Department of
Health, a provincial branch of theministry. The defendant's
advertising claim that its drug was "the only drug of the
type approved by theMinistry of Health" (which was liter
ally true at the time) was interpreted as misleading and
unfair by the court, which argued that approvals from the
two government agencies have equal legal standing.
According to the court's interpretation,the defendant exag
gerated the significance of its approval from theMinistry of
Health.
Material or not, omission is considered a major form of
deception in China (SAIC 1998, p. 2). Thus, creative adver
tising tactics built on omission easily run the risk of being
labeled as misleading. For example, an advertisement in
Zhengzhou Evening News played on suspense and asked the
public to "make sure to watch the special program on
Zhengzhou TV at 6:30 a.m. on January 25"; the special pro
gram turned out to be a special advertising program for a
liquor brand. The advertisement was interpretedas mislead
ing, and both the advertiser and the newspaper were
severely punished (SAIC 1998, pp. 6-10). In another pun
ished case, Guangzhou Jing'ao Advertising Co. used head
lines such as "Do advertising, pay no money" in its adver
tisements to promote its own business, omitting the
information that its clients were required to pay service fees
up front, though the agency would keep only the interest
generated but fully refund the principal three years later
(SAIC 1998, pp. 11-13).
Although it pays close attention to individual elements,
theChinese regulator also emphasizes thatan advertisement
as a whole should notmislead (SAIC 1998, p. 170). In such
a context, disclosures printed in very small font are inter
preted as confusing and misleading (SAIC 1998, pp. 167
70).
Although comparative advertising is not banned by Chi
nese advertising law, its use is restricted because of the
regulator's broad interpretation of misleadingness and
unfair competition. Claims such as "China's famous brand"
or "the only drug approved by the
Ministry of Health" are
interpretedas implying a comparison and, when unsubstan
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JournalofPublic Policy& Marketing 171
tiated, constitutingmisleading advertising and unfair com
petition (Qingdao Shuanglong v. Jiangxi Jiangzhong 1998;
Shunde Lanying v. Foshan Dontu 2002). The SAIC ([1999]
2001) categorically bans all claims about company/brand
rankings, satisfaction rates, market shares, and so forth,
even if such claims can be substantiated.
Deception
Chinese advertising laws do not clarify the standards to
determine deception, and contradictory criteria are often
advocated and applied. For example, Advertising Law
states that "an advertiser that publishes false advertising to
deceive and mislead consumers, and to cause the legal
interestsof consumers who purchase its product or service
to be injured shall bear civil liability" (National People's
Congress [1994] 2001, article 38). Such a clause dictates
proof of actual deception and injury.Yet, in categorically
prohibiting puffery, it also advocates the "likely-to
deceive" principle. Notably, the Supreme Court exonerates
promotional claims that employ obvious exaggerations but
are unlikely to mislead the public, thus contradicting the
statutory ban on puffery (China Supreme People's Court
2007). There is no evidence that the Supreme Court's inter
pretation of puffery has been consistently applied, and it is
up to judges to determine on a
case-by-case basis what con
stitutes obvious exaggerations that are unlikely to mislead
(Mo 2007).
A high percentage of administrative challenges initiated
by the government follows the likely-to-deceive standard;
these cases are filed because of theirperceived tendency to
deceive rather than actual complaints by injured consumers.
Indeed, the government's advertising monitoring system
aims to prevent deception from happening. For example, a
real estate company advertised in the local media onMarch
15 and 16 that itwould air-drop gift cards worth a total of
80,000 yuan along the People Avenue at noon on April 6.
The advertisement caught the attention of the regulator on
March 16, whose investigation revealed that the company
had not signed a contract with any airlines to rent planes,
and it could not substantiate the truthfulness of its "air
drop" plan either. Deciding that itwas a case of deceptive
advertising, the regulator punished the advertiser, its
agency, and the media outlet long before April 6 (SAIC
1998, p. 40), though the claim about the air-drop event was
immaterial to whether people would buy real estate from
the advertiser and the advertiser had considerable time
between March 16 and April 6 to actually implement the
event.
In contrast, the court often requires proof of actual decep
tion or injury. In determining whether a claim ismislead
ingly deceptive, China Supreme People's Court (2007)
advises the lower court to consider factors such as daily life
experience, the general understanding of the relevant pub
lic, people being misled, and the situation of the target con
sumer. Thus, in some consumer lawsuits, the court asks the
plaintiff to prove thathe or she relied on the alleged decep
tive advertising inmaking a purchase (e.g., Shi 2006). In
competitor-filed cases, the establishment of direct competi
tion between the plaintiff and the defendant alone does not
prove injury.For example, in the case of Shunde Lanying v.
Foshan Dontu (2002), the court believed that the defen
dant's deceptive advertising did not directly cause the
 172 DeceptiveAdvertisinginChina
Controlling
plaintiffs economic loss and thereforedenied the plaintiff
monetary compensation even though the plaintiff showed
evidence of its sales loss and its competitive relationship
with the defendant.
Contradiction also exists when it comes to the gullible
versus reasonable-consumer standard. Chinese
regulations do not specifically address the need for chil
dren's advertising to accommodate children's intellectual
capacity. The only exception is a self-regulatory document
issued by CAA (1997), which briefly mentions that chil
dren's advertising should not employ descriptions that go
beyond the target's comprehension and judgment (article
8). Although duly urging consumers to acquire more
knowledge about products, the regulator routinely punishes
cases of deceptive advertising inwhich only a small num
ber of consumers are injured (SAIC 1998). This suggests
that the gullible-consumer standard is somehow followed
in China. Yet writings by law professionals invariably
endorse the reasonable-consumer standard (Du 2005; Mo
2007; Xu 2006). There is also evidence that the court
resorts to the reasonable-consumer standard and
the consumer should be reasonably cautious inmaking pur
chases (People's Court of Haidian District 2003).
Verification
When it comes to verification, divergent standards govern
administrative and legal challenges in China. Administra
tive cases either require no verification or place the burden
of proof on the defendant, and the court usually requires the
challenger to prove falsity.
Administrative challenges can be furtherdivided into two
groups. The first group includes claims that are explicitly
banned by law, and advertisers are strictly liable formaking
the illegal claims. In such cases, the regulator can simply
cite the relevant legal provisions to support its challenge,
and no verification is ever accepted (e.g., Beijing Chong
wen Administration of Industry and Commerce 2007). The
list of illegal advertising claims is extensive, including a
variety of puffery, such as "the best," "number
most advanced technology," as well as category-specific
bans, such as statistics on cure rates and effectiveness,
money-back guarantees, and comparisons in advertising for
medical products and services (Gao 2007b). The second
group of administrative challenges involves permissible but
dubious claims, inwhich the defendant bears the burden of
proof (SAIC 1998). For example, a cosmetic surgery clinic
in Shanghai advertised that a famous South Korean surgeon
was on its staffbut failed to substantiate the claim; the regu
lator fined the clinic 20,000 yuan (Lu and Yang 2007).
In legal cases, the burden of proof usually falls on the
plaintiff (Xu 2006). For example, in its ruling on the case
of Zhou v. Sohu.com, the court suggested that the plaintiff
should prove that (1) he or she actually saw the online
advertisement on the defendant's Web site, (2) the online
advertisement he or she saw was deceptive, and (3) he or
she relied on the information in the advertisement tomake
the transaction, which led to the claimed injury. It dis
missed the case because the plaintiff failed to provide the
threepieces of evidence (Shi 2006).
However, in cases in which an advertising agency or
media company is sued, the burden of proof can be shifted
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to the defendant after the plaintiff provides evidence of
deception and injury deemed adequate by the court.
According to Chinese laws, media outlets and agencies
must carefully examine advertising documents required by
the government and should not knowingly publish decep
laws and tive advertising (National People's Congress [1994] 2001,
article 38). In enforcing this provision, the court often
requires themedia company or agency to prove that it has
fulfilled its censorship responsibility (Cao 2007; People's
Court of Haidian District 2003; Sun Xingning v. CC7Y
2006).
Remediation
Remedies against deceptive advertising in China fall into
two categories: administrative and legal. According to
Advertising Law, administrative penalties include cease
and-desist orders, corrective advertising, fines, and, for
agencies and media, confiscation of the advertising income
concerned, mandatory closure, and revocation of business
license (National People's Congress [1994] 2001, article
argues that 37). The regulator can directly administer these penalties
without getting the court involved. Mandatory closure and
revocation of business license are themost severe adminis
trative penalties. In 2005, the regulator closed down 167
advertising companies and revoked six advertising firms'
licenses (China Industry & Commerce News 2006); there
were 125,394 registered advertising firms in China in that
year (CAA 2006).
Administrative fines range between one and five times
the advertising spending involved (National People's Con
gress [1994] 2001, article 40). However, it seems that this
clause has not been consistently and predictably enforced.
For example, the fines levied by theBeijing Chongwen Dis
trictBranch range from a fraction of to four times the ad
spending (Table 1).
The regulator sometimes orders consumer refunds, espe
cially when public reaction is strong. For example, in the
case of "Jibang Weight Loss Pouch," after the advertiser
1," and "the disappeared, department stores in which counters were
rented by the advertiser to sell the product were ordered to
refund the buyers, even though the case was still being
investigated (SAIC 1998). In another case, the regulator
froze the bank account of the advertiser and forced it to
refund all themoney it collected from its customers (SAIC
1998, p. 2).
Because Chinese conventional media are state owned,
theirmanagers and staff can also be subject to administra
tive discipline and, if they are Communist Party members,
party discipline. In theZhengzhou Evening News case, the
general manager of the newspaper and themanager of its
advertising department both received such punishment, and
the newspaper itself was fined 150,000 yuan and was
seven
required to close down its advertising department for
days (SAIC 1998). The case was considered extraordinarily
serious because the reputation of a Communist Party organ
was damaged.
Penalties handed out by the court include cease-and
desist orders, corrective actions, public apologies, refunds,
v. Fos
compensations, and fines (Li 2005; Shunde Lanying
han Dontu 2002; Xi 2004). The consumer is entitled by law
to compensation equal to one times the purchasing price

from a manufacturer or retailer in addition to a full refund
when deception is involved (National People's Congress
1993, article 49), which is known in China as the "double
refund" rule. However, the advertiser's intent seems to
determine whether the plaintiff receives a double refund.
For example, the court rejected the plaintiff s demand for a
double refund in one case because the defendant did not
show any intent to deceive; the advertiser discovered and
voluntarily corrected the accidental mistake in its advertise
ment the day after itwas published (Chang 2004). In cases
inwhich the intent to deceive is present, the court usually
awards the plaintiff a double refund (e.g., Li 2005; Zhang
2003).
When deciding monetary penalties in deception cases,
the court apparently follows the "low-protection" principle
and attempts to balance public interestwith business inter
est (Shunde Lanying v. Foshan Dontu 2002). Such a prac
tice often results in no compensation for the plaintiff or a
compensation that ismuch lower than the plaintiff's claim
(Chen and Chen 2003; Qingdao Shuanglong v. Jiangxi
Jiangzhong 1998; Shunde Lanying v. Foshan Dontu 2002).
In Qingdao Shuanglong v. Jiangxi Jiangzhong (1998), the
appeal court further reduced the amount awarded to the
plaintiff by the lower court from 1,000,000 to 300,000
yuan, citing that the deceptive advertising of the defendant
was a reaction to the plaintiff's initial unfair competitive
practice, which had been resolved in a separate lawsuit.
Court rulings rarely specify how the court arrives at the
numbers.
compensation
In line with China's Criminal Law, parties found guilty
of deceptive advertising crimes can face up to two years of
jail time (National People's Congress 2006, article 222). In
these criminal cases, the court also orders confiscation of all
illegal income, fines, and refunds (Zhao, Lu, and Li 2005).
However, if a case is tried as a fraud case even ifdeceptive
advertising is involved, the defendant can face a much
longer jail term (Zhuang and Liu 2002).
Conclusions
Chinese advertising regulation is governed by several
statutes and administrative regulations; self-regulation
plays only a limited role. In this context, China's deception
control differs from the U.S. system on a few fronts (see
Table 3), thus posing serious challenges toU.S. firms oper
ating in themarket.
Contradictions embedded in the Chinese systemmay be
an even greater source of frustration for advertisers. First,
despite themany Chinese advertising laws and regulations,
the system does not provide clearly articulated definitions
and standards for determining deceptive advertising, so it
is plagued by the problem of subjective and inconsistent
adjudication. The problem is aggravated by its decentral
ized structure of enforcement that consists of hundreds of
local regulators. Prevalent corruption and a lack of
resources (Peerenboom 2002) further intensify the contra
diction between strict (but vague) legal provisions and
unpredictable enforcement. As a result, it is not unusual that
the same advertisement is banned by the regulator in one
city for deception but encounters no problems in other cities
(Beijing Business News 2007).
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JournalofPublic Policy& Marketing 173
Second, the regulator and the court follow varied stan
dards in adjudicating deception cases, even though they
interpretand enforce the same set of laws. This contradic
tion can be traced to the authorization of Chinese govern
ment agencies to issue administrative rules to interpretgen
eral advertising statutes. The total number of advertising
regulations and directives in effect indicates that these
agencies have fully exercised their lawmaking power.
Meanwhile, in asserting its autonomy, the court sometimes
departs from the regulator's interpretation and issues its
own interpretationof the same advertising law, thus send
ing confusing signals to advertisers.
Third, contradiction exists between the stringency of the
system and the state of the Chinese advertising market.
Overall, Chinese advertising regulation is stringent. It
adopts a broad definition of advertising; bans puffery and
restricts the use of advertising techniques such as testimoni
als, comparisons, statistics, and guarantees of effectiveness;
extends liability to include not only the advertiser and
agency but also themedia, retailers, and social institutions;
and allows individual consumers to challenge deceptive
advertising in the civil court. In addition, the regulator
advocates absolute truthin advertising and does not require
materiality in determining deception. Although it works
with limited resources, ithandles both serious and frivolous
cases. This rigid approach disregards the reality of Chinese
advertising, which, with its phenomenal growth, is still at
an early stage of development. Notably, themarket is char
acterized by numerous small agencies, inadequately trained
professionals, low awareness of laws and ethical standards,
and inexperienced consumers (China Journalism and Com
munication Review 2006). Given these circumstances, it is
not surprising that violation rates are high. However,
instead of choosing its battle carefully, theChinese system
usually reacts by implementing more rigorous rules and
bans, thus creating a vicious cycle that fuels even more
violations.
In comparison, problematic advertising claims in China
fall largely into two groups: (1) unsubstantiated, truly
deceptive claims thatare equally unacceptable in theUnited
States and (2) claims such as puffery, comparisons, and sta
tistics,which are allowed in theUnited States but prohib
ited or restricted by Chinese law. Foreign advertisers often
run into trouble because of the second type of claims. This
is especially true for global brands that lean toward a stan
dardized, hard-sell approach in their international advertis
ing; in their cases, puffery defense and verification are
rarely accepted by the Chinese regulator (Beijing Business
News 2007; Wang 2005). Foreign retailers in China are
even more vulnerable because they can be challenged for
selling products whose packaging and labels contain mis
leading information.For example, Wal-Mart was sued by a
Chinese consumer for selling a brand of cooking oil whose
label claimed that the product helped lower blood pressure.
The retailer lost the case in the court and was required to
double refund the plaintiff (Beijing Times 2007). Rising
nationalism inChina (Overby 2006) also means thatdecep
tion cases involving foreign advertisers can easily acquire
a sensitive political dimension that must be dealt with
carefully.
174 DeceptiveAdvertisinginChina
Controlling

Table 3. Comparing theChinese and U.S. Approaches toChallenges ofDeceptive Advertising

ChinaUnited States3
Initiation
Self-regulation None National Advertising Division

Government regulation SAIC and its local branches Federal Trade Commission (FTC), state

attorneys general

Criminal prosecution Local branches of China Procuratorate Rare

and theMinistry of Public Security

Private lawsuits consumers Competitors, consumers (rare)

Competitors,

Interpretation Extrinsic evidence Not required Required by Lanham Act (1946)

Literal falsehood Not required Focus ofLanham Act (1946)

Pursued
claims
Implicit More readilypursued by FTC

standard Unclear Reasonable consumer by FTC,

Deception
Deception
minimum 20%-25% of audience by
Lanham Act (1946)

Actual deception and injury Not required in administrativecases Presumed by FTC but requiredby
but required in legal cases Lanham Act (1946)

Not required
Materiality Generally presumed

Puffingdefense Yes
No

Verification Burden of proof on thedefendant in Advertiser substantiationrequiredby

administrativecases involving FTC, proof of falsityby plaintiff
permissibleclaims, burdenof proofon requiredby Lanham Act (1946)
the challenger in legal cases

Remediation Cease-and-desist orders,corrective Cease-and-desist orders, injunctionsby

refunds, fines, confiscation court, corrective advertising, and
advertising,
of income, mandatory closure, refunds
revocation of business license, and
criminal prosecution

^Compiled from Petty (1992) and Petty and Kopp

(1995)._

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