Consumers in China: The true meaning of san yao wu

Consumers in China: The true meaning of san yao wu

China’s new consumer law has local and foreign firms worried

Mar 15th 2014 | SHANGHAI | From the print edition


FIFTY-TWO years ago this week, John Kennedy gave a speech to Congress in which he argued that consumers “are the only important group in the economy who are not effectively organised, whose views are often not heard.” His eloquent plea for their protection led to the United Nations guidelines for consumer protection and to the annual celebration of World Consumer-Rights Day on March 15th.

Nowhere is that day marked with more gusto than in China, where it is known as san yao wu(three one five). Every year on that date, the national broadcaster airs a much-watched programme lauding consumer rights. It is also used as an excuse to bash successful foreign firms—Apple was last year’s main target—for small or imagined transgressions.

This year China will better honour Kennedy’s legacy. The television gala is still due to be broadcast this weekend, and corporate evildoers—internet firms are rumoured to be in the crosshairs this time—will probably be shamed again. But something more important will also happen. On March 15th a new consumer law, the biggest reform in this area in 20 years, comes into force. At face value, it appears to give a big boost to consumer protection. Retailers must take back goods within seven days; in the case of online purchases, consumers do not even have to offer a reason. Consumer data will be protected from misuse, and permission will have to be sought for any commercial use of them. Class-action lawsuits, hitherto rare in China, will become easier to file.

The motivations for the law seem sincere. The government is keen to shift the economy towards consumption-driven growth. Regulations protecting consumers should help, by bolstering their trust in merchants. Max Xin Gu of K&L Gates, a legal firm, also believes the law “is timed to come hand-in-hand with the anti-corruption campaign” launched by President Xi Jinping: both are meant to allow ordinary people to benefit from the rule of law.

James Feldkamp is the founder of Mingjian, a pioneering Chinese website offering independent product reviews (akin to America’s Consumer Reports or Britain’s Which?). He agrees that trust and transparency are key to boosting consumption. However, he worries about how the law will be implemented and enforced. Indeed it may leave consumers ill-protected even as it saddles firms with extra costs and complexity. For example, although parts of the law resemble the EU’s strict rules on data privacy, it has important gaps. Michael Tan of Taylor Wessing, another law firm, notes that it does not grant a “right to be forgotten” (by having firms expunge all record of a former customer). It leaves businesses in the dark on how exactly they can use customer data, and fails to impose on them a duty to ensure their accuracy.

Opening the door to class-action lawsuits may also prove a damp squib. In America aggrieved consumers can club together and go to court themselves. In China, points out Mr Tan, only government-controlled consumer associations will be allowed to launch such suits: “no ambulance-chasers here.” It is hard to imagine consumers persuading these official bodies to bring suits against state firms.

Consumer businesses fear that besides falling short in protecting punters, the law will tie them up in red tape. Publicly, local firms such as Alibaba, an e-commerce giant, say they are ready. Privately, many are worried. An executive at another big Chinese firm grumbles that “it’s a boatload of work and internal co-ordination to hit compliance.” Worse, the bureaucracy and the risk of prosecution may deter entrepreneurs from starting firms to compete with established ones; if so, the result will end up being bad for consumers.

China is catching up with the European Union’s exacting standards of consumer rights in much the same way as it has begun imposing EU-style curbs on cars’ emissions. In both cases, pressure from ordinary Chinese prompted the government to tighten standards. Besides benefiting the public, the pollution measures give an edge to firms with the most advanced technology, which in this case happen to be foreign multinationals.

As for the consumer law, Western firms, used to operating within strict consumer-rights regimes back home, ought to cope better with it than domestic ones. But the opposite may happen. Although on paper the law does not discriminate between Chinese and non-Chinese businesses, a local lawyer worries about “sporadic and discretionary enforcement”, in the same way that China’s antitrust laws have been applied strictly to foreign firms whereas local ones have usually been spared.

When faced with angry customers, domestic firms often have flexible rules, and can act fast to defuse crises—even if it means quietly paying off undeserving complainants. They also “know people who scare people,” says an expert on the local business scene, which obviously helps silence troublemakers. Multinationals, in contrast, tend to be bound by rules laid down in a distant head office (which would certainly preclude sending in heavies). By the time they have reacted to problems, unhappy customers may have taken to their weibomicroblogs or the news media to stir up trouble. Most foreign firms, concludes Scott Thiel, a lawyer at DLA Piper, “are just not ready for this law.”


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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