China’s Internet publishers’ future might become murky with the government’s release of online advertising regulations on September 1st. Let’s find out how China turned into one of the most regulated advertising markets and how changes will affect the ad industry.

Online advertising in China has been in a stage of booming development for years, and, according to China Internet Watch it’s estimated to reach 275.6 billion yuan in 2016. Many large brands decided to enter the fast-growing market, because it also wasn’t properly and meaningfully regulated by the country’s government. However, new online advertising regulations that will come into force on September 1st will seriously change the definition of online advertising and internet publishers, restricting companies’ actions in promoting products or services. What triggered this decision?

 

China. Online Advertising Market. Revenues

 

Baidu’s Wei Zexi scandal was the wake up call

The problem of lack of regulation in online advertising became huge after the tragic story of a Chinese student Wei Zexi. He was suffering from a very rare form of tissue cancer, synovial sarcoma, and preffered participation in an experimental cancer treatment he found in a promoted search result on Baidu over traditional surgery and chemotherapy.

Treatment cost his family over $30 000 and was less effective than the hospital has advertised. The ensuing Zexi’s death caused a huge wave of outrage and critisism in Chinese media towards Baidu’s method of ranking promoted posts way higher than organic results and unclear marking of sponsored ads. They blaimed Baidu in lack of social responsibility and concience and argued the need to renew attention to the Advertising Law, which now passes over advertisments of services that deal with human life without proper verification and control.

The Cyberspace Administration of China took all the negative comments into account and said it launches an investigation, which soon followed up with new online advertising laws. The regulations are about to make the Chinese Internet advertising industry a whole lot different than it was before. Let’s see what these changes actually mean and who will be mostly affected by them.

 

Straight to the details: how tightening restrictions on ads will affect brands

Two of the main aspects of the new advertising law in China concern definitions of both online advertising and internet publishers and a list of obligations.

One of the main goals of the law was to refer online advertising to commercial advertising for direct or indirect marketing goods or services, and the resulted definition of the term is rather broad and full of details. Basically, now internet advertising includes any type of internet media from texts and images to applications and even sponsored search results and all commercial displays.

As for internet publishers, the new definition includes those who push or display the advertising, so anyone from website owners to even internet service providers are now responsible for verification of the advertising content. Just like the previous one, this definition is also very broad, which gives the government possibilities to apply and enforce the law the way it wants.

Obviously, the ones that feel the harshest impact on themselves after the law will come into effect are the search providers, including distressful Baidu, which shares already fell by 8% in extended trading at the end of July after the announcement about upcoming investigations. Now that search engines will have to limit promoted results to 30% of the SERP and vividly distinguish paid ads their advertising revenues will predictably become shrinking.

 

China. Online Advertising Market. Revenues

 

However, marketers that reach their Chinese customers will also feel the weight of new obligations. They will need to “exit certain high-risk ad categories”, as Evan Zhou, an analyst at Credit Suisse notted. What is more, some other analysts claim that there’s a strong possibility of taxes growth now that paid search results are defined as an advertisement.

What all of the internet publishers will have to do is to hire new specialists, because, according to the new law obligations, verification of credentials and the ad content will be a necessity. However, there’s a lot of questions concerning these new responsibilities. As if there were only a publisher and an advertiser in a game, it’d be easier to maintain the whole process, but now that there’s a whole bunch of players, including internet service providers, it’s hard to say, which of them will be truly responsible for all the claims made in the ads.

For now it’s hard to predict, whether the impact of this regulations will be so strong that the whole world will follow the trend. The future of China’s online advertising seems rather vague, and all of the publishers, agencies and brands still need time to digest the new rules and evaluate the cost and time of efforts they’ll need to make their advertising practice compliant. However, if China proves that the new law is adaptable and good for everyone in the long run, other countries might spark with an idea of changing their regulations, too.

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