E-commerce and food safety: a new style of regulation in China

Posted By: Selerant RSA

By Dr. Pinghui Xiao (Postdoctoral Researcher at Institute of Executive Development, China Food and Drug Administration)

This is the second part of Pinghui Xiao’s analysis, the first part can be found here.

Food -e -commerce

The Chinese government is anxious about the boom of food e-commerce and its implications for food safety given China’s history of food scandals. Hence, Chinese food regulators have started to take the initiative to tighten regulation.

China Food and Drug Administration (CFDA) is China's principal regulator for food and drug sectors. As a consolidated new ministry affiliated to China's State Council, it is facing ever-increasing governance challenges as far as sound legislation and capacity building are concerned. To address these, two departments play important roles. The Department of Legal Affairs is in charge of law drafting and reviewing while the Institute of Executive Development is responsible for high-level training and research relating to law enforcement and industry compliance.

The CFDA’s Department of Legal Affairs recently prepared a revision of the Food Safety Law, which is being reviewed by the Standing Committee of the National People’s Congress and will enter into force October 1 2015. The revision contains a totally new provision, which stipulates that food third party e-marketplaces will have co-responsibilities for any damage caused to consumers by food safety incidents. Thus, whenever consumers purchase food from a certain e-marketplace and consequently suffer from food poisoning, they can directly approach the respective e-marketplace for compensation – instead of approaching the food business operators, supposed that the e-marketplace failed to identify relevant business operators. The revised law is projected to be approved this year.


E-commerce platforms also regulate


While this is an important element of regulating food e-commerce in China, the authorities face a number of challenges. Most notably, e-commerce adds to the complexity of the supply chain. As mentioned before, there are around 400 thousand business operators selling edible agricultural products through Alibaba’s platform. Most of them are small or medium sized enterprises spread over more than 30 provinces in China.

A food product sold through Alibaba platform could thus be produced in Province A and be delivered to a warehouse located in Province B for redistribution to customers through a food e-commerce system. However, the actual food business operator may run its e-commerce businesses in Province C. To advertise, food business operators might go to social media companies registered and operating in Province D for advertising. And finally, the server for Alibaba platform could be located in Province E. Public regulators find it almost impossible to supervise so many players in so many different locations. Traditional public regulation is very much based on territorial jurisdictions.

The other problem for public regulation lies in the fact that the Chinese legal system is lagging behind industry development. As a consequence, there is a private regulation movement in e-commerce and this is applied to food e-commerce as well. When it comes to food e-commerce, private regulation by private stakeholders (in particular by third party e-marketplaces) is rising at least as an alternative for public regulation. Private regulation is not intended to replace public one, but in some cases, it actually plays a more important role than public regulation.

Alibaba for instance, has established a so-called Shield Department to crack down on counterfeit goods. There are around 2000 people working in this department. This department in cooperation with other Alibaba divisions creates rules to regulate business using the Alibaba platform. These rules have teeth and are enforceable like government regulations. For instance, Alibaba can order an inspection of goods to be sold on its platform and decide whether a business can stay on the platform based on the inspection results. To this end, the Shield Department heavily relies on big data. Private regulation as adopted by Alibaba makes a lot of sense and it leads to co-regulation between public and private actors.


Shared responsibility


It is not an easy task to regulate food e-commerce in China given the fact that the business is extremely diverse and vibrant. Internet is one of the most innovative sectors in China and it is actually being promoted as a national strategy and priority. Therefore, the National Reform and Development Commission has commissioned the Alibaba Research Center to lay down a blueprint for China’s next move to an internet based economy. Chinese government has realized that it alone cannot regulate food safety well. This is why in the revised Food Safety Law, social co-regulation is first mentioned as a principle. Food safety regulation is a shared responsibility – shared among a range of social stakeholders like food producers, public agencies, consumers, media, to name a few. This idea is actually already practiced in food e-commerce.