I. Introduction
While business is profit-driven, so are some consumers. Faced with a reward-giving whistleblower system that does not provide sufficient economic incentives, it is perhaps not surprising that some would take matters into their own hands. Article 55(1) of China’s Consumer Rights Protection Law (CRPL)Footnote 1 provides consumers with the right to claim punitive damages when business operators engage in fraudulent practices. The compensation amount can be increased to three times the cost of the goods or services. The Food Safety Law (FSL)Footnote 2 and the Drug Administration Law (DAL)Footnote 3 even increase the compensation amount to ten times of the food and drug products. These laws gave rise to “professional consumers,”Footnote 4 a cryptic faction of consumers operating in China’s consumer market, who have been adeptly tracking down sellers’ malfeasance and infringements for monetary gains. One of the most contentious issues in the theoretical and practical realms of Chinese consumer law is the question of whether the claims of professional consumers will be upheld. Nevertheless, regulatory documents and practices have been inconsistent for 30 years on this issue. Given the paucity of research in English literature concerning Chinese consumer law on this topic, this paper seeks to address this gap by introducing a unique phenomenon with China’s distinctive regulatory approach.
Professional consumers possess considerable bargaining power and resources with which to detect sellers’ violations and request compensation. It is important to recognize the significance of private enforcement of public objectives, as they help to offset the deficiency of resources in a traditional command-and-control system. Conversely, this group of consumers may have a detrimental impact on the legal system in various ways. Such actions result in the inefficient use of administrative and judicial resources, contribute to an unstable business environment, and divert social resources that could otherwise be utilized by ordinary consumers.Footnote 5 China’s legal system has been grappling with the question of whether to prioritize consumer protection or fair market order for three decades, during which time it has vacillated between different regulatory approaches. This erratic regulatory history is without precedent in the contemporary Chinese legal tradition. The lack of clarity surrounding the legal status of professional consumers has led to an increase in secrecy and a rise in regulatory challenges.
A major breakthrough came on 15 March 2024, World Consumer Rights Day and CRPL’s 30th anniversary. The CRPL Implementation RegulationFootnote 6 was issued and is set to take effect on 1 July 2024. It introduces the concept of consumer protection co-governance,Footnote 7 which combines law-abiding operators, industry self-regulation, consumer participation, government regulation, and social supervision. This is the first time in the past three decades that the central government has recognized the active role of consumers in ensuring consumer protection. The statement aligns with the political objective of the Communist Party of China (CPC) to establish a national governance system based on Co-construction, Co-governance, and Co-sharing.Footnote 8 This article posits that the formalization of this strategy represents a pivotal moment in the history of consumer protection regulation in China and will influence the trajectory of professional consumer regulation in the country.
In light of the aforementioned background, this paper offers a comprehensive review of China’s legal system with regard to the fluctuating regulatory landscape pertaining to professional consumers. It aims to determine if the 2024 breakthrough will halt the fluctuating trend and predict future developments. This paper is structured as follows: Part 2 provides an overview of the regulatory background, profitable methods, and current status of professional consumers. Part 3 examines the historical development of China’s legal framework for managing professional consumers. Part 4 analyzes contested norms that affect the ambiguity of laws and regulations from both consumer and seller perspectives. Part 5 explores regulatory inconsistencies from a systematic perspective, investigating the interaction among the legislature, administration, and judiciary. Part 6 offers insights into the potential future trajectories of this distinctive cohort of consumers and elucidates the legal foundations underlying these projections.
II. Overview of professional consumers in China
The implementation of a punitive damages system by CRPL has led to the emergence of a new class of consumers, known as “professional consumers.” The concept of professional consumers can be traced back to Mr. Wang Hai,Footnote 9 who discovered that he could profit as an individual consumer by seeking compensation for or reporting counterfeit or substandard products as early as 1994. He has not only amassed a considerable fortuneFootnote 10 through the tracking of counterfeit products but has also actively advised consumers of counterfeit products to pursue compensation.Footnote 11 He has successfully established himself as a professional consumer advocate, attracting a significant number of individuals to the profession. This section presents an overview of the regulatory context, profitable strategies, and current status of this distinctive group of consumers in China.
1. The regulatory framework for professional consumers
The CRPL 1994 initially imposes punitive damages of one time the original price on manufacturers and providers (referred to interchangeably as sellers) of counterfeit or substandard products.Footnote 12 Following China’s accession to the World Trade Organization (WTO) in 2002, a comprehensive legal reform initiative was initiated to align the country’s legal framework with the WTO’s standards.Footnote 13 Regulatory agencies intensified their enforcement of existing laws and regulations, including the promulgation of the FSL, the revision of the CRPL (CRPL 2013), and the revision of the DAL. The compensation for consumer products other than food and drugs may be up to three times the original product price, with a minimum of RMB 500.Footnote 14 In contrast, the standard for food and pharmaceuticals can be up to ten times the original product price, with a minimum of RMB 1,000.Footnote 15 Furthermore, sellers of substandard or fake products and services may face both administrative and criminal penalties. As a consequence, sellers are now more alert to potential claims from customers, which in turn provides professional consumers with greater leverage when seeking compensation. Appendix I outlines the legal liabilities that sellers may face under civil, administrative, and criminal laws.
2. Three methods for seeking compensation by professional consumers
Chart 1 illustrates three potential avenues for professional consumers to profit. Firstly, they can report illegal activities to relevant authorities, as indicated by the black lines (Method 1). A successful whistleblowing may result in a reward of up to RMB 1,000,00Footnote 16 to the whistleblower and administrative penalties up to suspension of business operation.Footnote 17 Secondly, as illustrated by the blue line (Method 2), professional consumers may request statutory compensation directly from the seller. In practice, they frequently propose an amount that is equal to, or higher than, the legally required compensation; however, it is typically less than the sum including the statutory compensation and potential administrative fine if the matter is brought to the attention of government agencies. The settlement agreement typically includes a confidentiality provision regarding both the fraudulent products and the identity of the compensated consumer. Third, in the event that the seller refuses to settle, professional consumers have three potential avenues for recourse: Method 3.1 suggests that consumers can pursue legal action directly against the seller. Method 3.2 outlines the possibility of reporting the violation to the relevant regulatory body, which can then be utilized as evidence in a lawsuit against the seller.Footnote 18 Method 3.3 outlines the possibility of obtaining redress through public interest litigation. This can be initiated by the Procuratorate, which is responsible for prosecuting violations related to food and drugs,Footnote 19 or civil public interest litigation, initiated by consumer associations on behalf of consumers in general.Footnote 20
Three methods of requesting compensation by professional consumers.
3. Status quo of professional consumers
In order to prevent industry-wide boycotts, professionals often adopt the guise of ordinary consumers. The lack of transparency surrounding this group makes it challenging to conduct precise statistical studies on them. Although there is a paucity of publicly available data on the actual numbers or regional distribution of professional consumers, some information about this population can be gleaned from a few autobiographies,Footnote 21 interviews,Footnote 22 and media coverage.Footnote 23 It is estimated that there are several hundred thousand individualsFootnote 24 who engage in this behaviour. Additionally, this group displays the following characteristics.
1. Professional consumers tend to seek high-value products that are subject to stringent regulations, and they pursue infringements that are relatively easy to identify. For instance, a substantial proportion, 90% of court cases concerning food violations are related to labeling.Footnote 25 The remaining cases pertain to shelf life, illegal additions of food ingredients, and incorrect production licences.
2. Professional consumers are more likely to engage with larger companies, which are better positioned to resolve disputes through considerations such as reputation and stock market compliance. Furthermore, the success rate of requesting compensation in one branch of a specific company can inform professional consumers about the likelihood of success in other branches of the same company.
3. Professional consumers tend to group up rather than independently seeking compensation as they did in the 1990s. For instance, four prominent family groups have emerged in Chongqing city, and the annual revenue of the most successful family group was more than RMB 2 million,Footnote 26 despite the unknown amounts from settlements.
4. In the twenty-first century, professional consumers have increasingly resorted to Methods 3.1, and 3.2, with a notable decline in the use of Method 1 observed in the 1990s. Unfortunately, this communication can take various forms, including illegal methods such as extortion. These developments have resulted in a shift in social attitudes, from viewing these individuals as “counterfeit heroes”Footnote 27 in the 1990s to later labeling them as “unruly individuals.”Footnote 28 Appendix II provides a summary of the disparate perspectives expressed by media outlets over the past three decades.
III. The 30-year swinging regulatory changes on professional consumers
Over the past three decades, there has been a lack of consistency in the regulatory environment for professional consumers. Initially, the influence of Wang Hai led to the endorsement of professional consumers. However, in response to the growing engagement of professional consumers in illicit compensation-seeking activities, public authorities introduced a multitude of guidance documents, resulting in ongoing adjustments and conflicts within the legal system.
The author summarized and evaluated representative legal documents, judicial decisions, and media coverage from the past 30 years, as listed in Appendices II through IV. The materials selected were chosen based on the following criteria. The legal documents included were national laws and regulations, as well as judicial interpretations and pioneering local regulations in major cities. The judicial decisions were those judged, cited, or listed as guiding cases by the Supreme People’s Court (SPC). Finally, the media coverage was selected from nationally official media outlets, as these could reflect the public authorities’ attitude.
The author distinguishes between three categories of the practical impact of their work on professional consumers. The term “positive” is employed to describe a more tolerant attitude towards professional consumers. The “neutral” category of media coverage refers to objective reports that reflect public attention to this group of consumers. It should be noted that these selections are not exhaustive, but they are illustrative of the rough historical evolution of regulatory attitudes towards professional consumers.
The author employs a numbering system (1, 0, -1) to categorize items as either positive, neutral or negative. When there is a dearth of notable activity on the part of governmental authorities or the absence of influential legal documents and judicial decisions, the author also assigns a value of 0 to these periods. The aforementioned system is then employed to generate Chart 2, which illustrates the evolution of legal and social attitudes over the past three decades. A pattern emerges whereby there has been a period of endorsement (1994–1997), prohibition (1997–2007), re-endorsement (2007–2016), and re-prohibition (2016–2024),Footnote 29 followed by a period of mixed endorsement and prohibition (2024–). Despite the existence of specific inconsistencies, this general trend has persisted. This section presents a detailed analysis of the significant modifications to legal documents and adjudication, as well as the regulatory changes that have taken place during COVID-19.
The Evolution of Legal and Social Attitudes Towards Professional Consumers.
Note: This chart was created using Appendices II through IV. -1 indicate a more critical attitude, while 1 indicate a more approving attitude.
1. Changes in attitudes in legal documents
A review of regulatory attitudes towards professional consumers over the past three decades reveals a fluctuating pattern of approval and prohibition. Appendix III presents a synopsis of the changes observed in national and local legal documents.
a. Towards more sophisticated standards in national legal documents
The CRPL is silent on the legislature’s attitude toward professional consumers. Nevertheless, two primary legal documents from the judiciary and the administration provide guidance on how to regulate professional consumers, leading to further ambiguity. First, a 2013 SPC judicial interpretationFootnote 30 clarifies the ambiguous legal status of professional consumers in the food and drug industries and confirms their legal protection. The SPC emphasizes the crucial significance of ensuring food and drug safety for human health. However, it is unclear whether legal protection should be extended to professional consumers in non-food and non-drug industries. Second, the 2016 Draft CRPL Implementation Measures excludes protection for consumers seeking profit (营利).Footnote 31 This draft proposes to exclude professional consumers, even if their profit-seeking activities are legitimate. Although this draft has never been enacted, it is often cited by authorities to indicate the State Council’s disapproval of professional consumers.
The recently promulgated CRPL Implementation Regulation attempts to clarify the regulatory stance on the matter. It explicitly prohibits activities that seek illegal benefits (牟取不正当利益) and infringe on the legitimate rights and interests of operators.Footnote 32 In contrast to the term profit-seeking (营利),Footnote 33 which covers all activities undertaken with the aim of making a profit, the term seeking illegal benefits (牟取不正当利益) refers only to illicit activities aimed at making an illicit gain. The new provision sets a higher standard of scrutiny for professional consumer behavior and represents the State Council’s first recognition of the positive role of professional consumers in legal form. Their legal activities in seeking redress fall under the category of consumer participation and social supervision in a consumer rights protection co-governance system as promoted in Article 3. Although it is still too early to assess the practical impact of this regulation, it is expected that this more sophisticated set of criteria will serve to minimize inconsistencies and resolve many of the confusions that have arisen in the past.
b. Inconsistencies and contradictions in national “soft law” documents
Compared to the legally binding documents mentioned above, a number of lower-level administrative and judicial communications illustrate a more complex and unpredictable trend.
When reviewing numerous such non-legally binding soft law documents,Footnote 34 it is not uncommon to find contradictory or self-contradictory positions adopted by the same institution. For example, the State Council urged the strengthening of punitive damages and the curbing of infringementsFootnote 35 in 2015. In 2019, however, it ordered the suppression of extortion under the guise of “combating counterfeit goods.”Footnote 36 Nevertheless, in a 2022 response on its website, the State Administration for Market Regulation (SAMR) mentions that the law does not differentiate between professional and ordinary consumers.Footnote 37 The 2015 and 2022 opinions indicate the administration’s permissive attitude, while the 2019 opinion indicates a prohibitive attitude.
The SPC has also adopted a changing stance. For example, in 2001, the Vice-President of the SPC stated that professional consumers were not protected by the CRPL.Footnote 38 However, in 2013, the SPC explicitly granted protection to professional consumers in the food and drug sector.Footnote 39 In 2014, the SPC showed a generally positive attitude by stating that the definition of consumer under the CRPL is broad,Footnote 40 while in a 2017 response it decided to finally restrict profiteering (牟利) activities of professional consumers, except those in the food and drug sector.Footnote 41 Profiteering (牟利), illegal activities for profit, has a narrower scope than profit-seeking (营利) in the 2016 Draft Implementation Measures, but a broader scope than seeking illegal benefits (牟取不正当利益) in the 2024 Implementation Regulation. This chaos continued until 2021, when the SPC Research Institute of Judicial Cases issued a summary of its adjudication rules.Footnote 42 Although not legally binding, the SPC Research Institute’s case summaries serve as a basis for future SPC guidance and provide insight into the future direction of SPC guidance that will be legally binding on local courts.Footnote 43
c. Impact of legal inconsistencies on local practices
Unfortunately, instead of clarifying the legal position of professional consumers, the above-mentioned legal adjustments only serve to provide guidance to professional consumers in reshaping their business model. For example, the 2013 judicial interpretation, which is legally binding,Footnote 44 has led to a surge of professional consumers in the food and drug market. The volume of consumer protection lawsuits increased almost eightfold between 2014 and 2017, mainly in food and drug cases. In 2017, these lawsuits accounted for 15.27% of all civil cases.Footnote 45
Meanwhile, both judges and professional consumers recognize the lack of legal binding forceFootnote 46 of the 2017 response, so the language of “gradually restricting the profitable anti-counterfeiting behavior of professional counterfeiters”Footnote 47 has little deterrent effect.
On the other hand, the lack of clear guidance in national documents has led local authorities to develop their own regulations. Interestingly, local authorities are generally restrictive towards professional consumers. It is worth noting that local regulations still differ in detail, as shown in Appendix III. For example, the Shanghai government adopts a watch list for professional consumers based on a number of criteria,Footnote 48 while the Shenzhen legislature focuses only on the purchase amount.Footnote 49
2. Changes in attitudes in judicial practices
Local courts differ in their treatment of professional consumers. A search of the legal database using the keyword “knowingly purchasing fake or inferior products” yielded 10,280 court verdicts and 27 administrative decisions,Footnote 50 which may only reveal the involvement of professional consumers from both the judicial and administrative branches. Moreover, the courts differ in the compensation they award. 77.79%Footnote 51 of the courts uphold the claim for compensation, of which 30%Footnote 52 uphold the professional consumer’s claim and the rest tend to reject it. The rate of successful compensation also varies according to location. For example, 59.08% of compensation cases between 2017 and 2021 originated from Chongqing courts.Footnote 53 Appendix IV provides representative examples of court decisions based on the legal documents in force at the time.
3. Pandemic-induced changes in regulations
Covid-19 brought about significant changes in the regulatory system and affected the practices of professional users. The pandemic not only slowed down China’s economy, but also resulted in a significant shortage of qualified personnel in government agencies and prolonged legal proceedings. To address this challenge, various legal documents, as listed in Appendix V, have been introduced to promote economic growth by developing a more conducive business environment. These measures typically do not penalize companies for minor misconduct, which has the effect of reducing professional consumer activity. For example, Beijing does not punish first-time minor violations.Footnote 54 On the other hand, the pandemic has shifted the focus of enforcement to more serious issues such as food and drug safety. As a result, professional consumers have quickly adjusted their strategy to increase the likelihood of receiving compensation.
IV. Key issues leading to ambiguities in the regulatory system
In essence, the fluctuation in regulations is due to a number of unresolved value judgements. In principle, the CRPL grants more favorable protection to consumers vis-à-vis sellers.Footnote 55 However, the legal system is silent on two issues. First, does the skewed consumer protection extend to professional consumers? If the answer is yes, how can the protection of professional consumers be reconciled with the need to maintain market order? In other words, in order to maintain a fair market order, can sellers be exempted from punitive damages because professional consumers deliberately purchase substandard or counterfeit products? This section discusses controversial terms from the perspective of both consumers and sellers, representative cases of which can be found in Appendix IV.
1. Determinations on the consumer side
The core issue is whether professional consumers are consumers under the CRPL.Footnote 56 The CRPL defines consumers as individuals who purchase or use goods and services for living consumption needs (生活需要).Footnote 57
a. Different interpretations of living consumption needs (生活需要)
Some courts interpret living consumption needs narrowly as daily needs.Footnote 58 Therefore, the purchase of more than fifty bottles of wineFootnote 59 and forty-eight buckets of olive oilFootnote 60 would not be considered as living consumption needs. Some courts adopt a broader interpretation to include all consumption that is not for business purposes,Footnote 61 such as wholesale purchases or resale of products.Footnote 62 Concerning whether the compensation sought aligns with daily needs,Footnote 63 some courts interpreted this to include all transactions aimed at increasing the value of personal and family assets.Footnote 64 Conversely, some courts have rejected this view on the grounds that compensation-seeking is contrary to good faith.Footnote 65 Interestingly, the 2013 SPC interpretation attempted to avoid this debate by using the term purchaser rather than consumer.Footnote 66 Some scholars interpreted this as the SPC recognizing the CRPL’s recognition of professional purchasers as consumers.Footnote 67
In the absence of clear guidance, an SPC judge suggests that courts should consider the specific characteristics of the purchasing behavior, such as a reasonable quantity of a purchase based on the purchaser’s financial capacity and consumption habits.Footnote 68 For example, the purchase of 148 boxes of donkey skin gelatine would exceed the purchaser’s normal level of consumption and therefore disqualify him as a consumer.Footnote 69 However, another judge believes that the criterion of reasonable quantity is arbitrary.Footnote 70 As a result, some courts try to avoid this issue by allocating the burden of proof. However, courts still differ in how they do this. Some require the consumer to prove his identity as a consumerFootnote 71 or the non-conformity of the product,Footnote 72 while others require the seller to prove the conformity of the product.Footnote 73
b. Different stances on knowingly purchasing counterfeits (知假买假)
An opposing view against professional consumers due to the nature of knowingly purchasing counterfeits (知假买假). Some scholars argue that the CRPL provides special safeguards for consumers who are disadvantaged by information asymmetries and vulnerability.Footnote 74 Some courts also consider it inappropriate to grant such protection to intentional purchasers who do not suffer from information disadvantage.Footnote 75 Moreover, the most common reason for courts to dismiss compensation claims is that the intentional purchase of counterfeit goods violates the principles of estoppel and good faith.Footnote 76
Recent SPC documents suggest that the SPC is attempting to adopt a more complex approach to dealing with knowingly purchased counterfeits. A 2023 draft interpretation explicitly grants consumer status to individuals who knowingly purchase counterfeit food and drugs. products.Footnote 77 In the 2024 Work Report, the SPC limits its endorsement to professional consumers by instructing courts to uphold claims for compensation only on the basis of a reasonable quantity purchased, rather than the actual amount purchased.Footnote 78
2. Determinations on the seller side
The CRPL imposes punitive damages for the seller’s commission of fraud (欺诈) Footnote 79 without providing a clear definition, which has resulted in a lack of clarity regarding the applicability of punitive damages to professional consumers. An examination of the basis for punitive damages is a 1988 SPC judicial interpretation, which awards punitive damages based on the subjective misapprehension of the party concerned.Footnote 80 The current Civil Code defines fraud as the intentional provision of false information or concealment of true information, which causes the party concerned to act on the basis of a misapprehension.Footnote 81 However, neither subjective misrepresentationFootnote 82 nor causationFootnote 83 occurs in professional consumer scenarios. Therefore, some courts hold that the seller’s conduct is not fraudulent and therefore punitive damages are not available. In contrast, other courts analyze that the CRPL has a dual natureFootnote 84 – both public law (as administrative law), which protects public interests, and private law (as civil law), which protects private interests. They focus on the public law nature of the CRPL and consider that, unlike private law fraud, public law fraud only requires the seller’s unlawful conduct to be intentional.Footnote 85 Thus, they award punitive damages when the operator intentionally commits fraudulent acts.Footnote 86
V. A systematic analysis of the causes of regulatory inconsistencies
This paper posits that the 30-year regulatory inconsistencies observed in the context of professional consumers are an unavoidable consequence of the current legal system. The historical reason for this is that the legislature, the National People’s Congress (NPC), did not anticipate the emergence of professional consumers when drafting the CRPL.Footnote 87 This has resulted in a profit marginFootnote 88 that falls within the current legal loophole. The author notes that in order to address the gap in the profit margin, the administration and the judiciary have used their limited legislative powers to intervene. As the state authority structure has shifted its focus from promoting legislative and administrative unity to prioritizing decentralization,Footnote 89 the issue of legislative departmentalization leads to regulatory inconsistencies. This section discusses how unbalanced interactions among the three branches have led to unique regulatory inconsistencies in the regulation of professional consumers.
1. Inconsistent formulation of legal documents by the administration and the judiciary
The primary reason is that due to legislative departmentalization, the administration (the State Council), the judiciary (the SPC and the Supreme People’s Procuratorate (SPP)), and the local people’s congresses (LPCs) all hold varying degrees of legislative power. Because the NPC rarely legislates, there is ample room for the administrative and judicial branches to exercise their legislative powers, resulting in regulatory inconsistencies.
The State Council has legislative power in three ways with different degrees of discretion, leading to abuse of discretion and lack of legal basis. First, it can promulgate administrative regulations according to the Constitution.Footnote 90 The State Council has considerable discretionary power in this category, leading to the risk of abuse of power. Second, the Legislation Law allows the State Council to promulgate administrative regulations that clarify the implementation of laws.Footnote 91 Administrative regulations in this category are less likely to conflict with laws.Footnote 92 Third, in the absence of laws, the State Council can issue administrative regulations with the approval of the NPC.Footnote 93 Due to the lack of a legal basis in existing laws, administrative regulations issued under the third category may face instability if the NPC later enacts a law. The organs of the State Council are also authorized to promulgate rules according to their own discretion.Footnote 94
The judiciary also enjoys discretion when it issues judicial interpretations relating to the specific application of laws in legal proceedings.Footnote 95 Although interpretations must be submitted for recording by the NPC Standing Committee, the exercise of judicial power is typically safeguarded from state authorities’ interference under the principle of judicial independence.Footnote 96 In practice, the SPC and the SPP consult with the State Council Legal Office and sometimes even with the NPC when drafting judicial interpretations; there is no official legal review process for judicial interpretations in China. Thus, the power to develop judicial interpretations is at the discretion of the SPC and the SPP,Footnote 97 as long as it falls within the legal scope prescribed by law.Footnote 98
Local legislative processes are also departmentalized, which has three consequences. First, similar to the national level, local legislative processes are used to actualize and consolidate departmental interests, resulting in a game of interests among different branches. Second, local governments may be reluctant to make progress on major legislative initiatives involving complicated interests, leaving gaps in the local legal system. These gaps are typically filled by soft law documents and court rulings, leading to more inconsistencies. Finally, due to limited expertise in legislative matters, local regulations face a variety of challenges, including misinterpretation of higher-level legal texts, inadequate legislative authority, duplication of problematic higher-level laws, and delays in revision and repeal.Footnote 99
2. Inconsistent legal interpretations by the administration and the judiciary
The second reason for legal inconsistencies for professional consumers is that the administration and the judiciary interpret the law differently. Interpreters may give undue weight to their personal understanding of legislative intent when applying the law, potentially leading to biased results.Footnote 100 This tendency is not effectively curbed in China because case law is not binding. Although the SPC has been issuing typical cases since 1985, few of them have involved professional consumers. The SPC has also issued guidance cases to standardize national adjudication practices, but this practice has only been in place for 10 years, and unification on professional consumers has not been successful.
An illustrative example is punitive damages in food and drug law. The State Food and Drug Administration (SFDA, now merged into SAMR) has interpreted the scope of punitive damages to include purchases without consumption.Footnote 101 Therefore, without requiring proof of actual consumption or resulting harm, the SFDA would consider that a purchaser who did not consume expired dairy products is still entitled to recover damages. In contrast, courts have applied different standards of review to determine the application of punitive damages. For example, some courts apply a formal standard of review Footnote 102 that considers any deviation from the national food safety standard to be a violation of the FSL. However, some other courts, interpreting the CRPL as intended to protect social and economic order,Footnote 103 adhere to the substantive standard of review. They examine the seller’s subjective knowledge of the product defect and the actual harm caused to the victim’s health and well-being.Footnote 104 Therefore, when dealing with unconsumed expired dairy products, courts with differing interpretations of legislative intent may reach different rulings, ranging from awarding to denying punitive damages.Footnote 105
3. Confusion between administrative and judicial enforcement
The third reason for legal inconsistencies for professional consumers is the difference in administrative and judicial enforcement practices. As discussed above, legal liabilities in administrative and civil law are not always the same. Therefore, the assumption of administrative liability does not automatically lead to civil liability.Footnote 106 Nevertheless, some courts erroneously conflate the two, assuming that the agency’s finding of a violation is conclusive. It is not uncommon for some courts to bypass legal analysis and simply refer to the administrative determination of violations as their factual finding, resulting in the imposition of punitive damages. In addition, courts may rule differently in cases with similar facts but no prior administrative record than in cases with a prior administrative record.Footnote 107 This practice has also led to inconsistent judicial decisions in cases with similar facts.
Fortunately, in order to minimize discrepancies in administrative and judicial enforcement, the CPC is mandated to create a Unified National Market in 2022.Footnote 108 The State Council is required to strengthen administrative regulations and develop standardization and normalization of market supervision.Footnote 109 In response, the SPC directs the judiciary to strengthen communication and cooperation with the administration in market regulation and law enforcement. In particular, the judiciary is striving to promote the unification of adjudication standards in administrative and judicial proceedings.Footnote 110 Although the above two documents are soft law, they demonstrate the strong determination of the CPC, together with the administration and the judiciary, to unify adjudication standards and reduce legal inconsistencies.
VI. The future directions of regulating professional consumers in China
Professional consumers will persist as long as there is a profit margin created by regulatory inconsistencies. Fortunately, recent developments, particularly those highlighted during the thirtieth anniversary of the CRPL, aim to minimize regulatory gaps and steer professional consumers in the right direction. As for the future of professional consumers, the author believes that they will not disappear. As a private force to enforce the public objective of consumer protection, particularly in food and drug safety, its continued existence is assured. However, part of their role will be replaced by other legal measures, such as public interest litigation. Meanwhile, the legal system will strictly regulate their negative impact on market order. These projects exemplify China’s unique co-governance strategy.
1. Reshaping professional consumers as a vital player in co-governance
As mentioned above, the CRPL implementing regulation has recently entered into force, introducing the concept of consumer protection co-governance Footnote 111 for the first time in 30 years. It is a sign that public authorities are taking a more holistic approach to the regulation of private actors in the field of consumer protection. The current cohort of professional consumers is a double-edged sword. Neither their positive nor negative effects can be ignored. While they may pose a threat to a fair market order, they may also contribute to a private enforcement of the law to achieve public goals. As one judge noted, counterfeiters will not be able to maintain their market if consumers remain vigilant and are able to identify fakes.Footnote 112 This paper argues that with the promulgation of the CRPL implementing regulation in 2024, the regulatory system has started a new trend to reshape the professional consumer, maximizing the positive regulatory effect while eliminating the negative one. However, challenges remain.
a. China’s co-governance strategy in principle
The pivotal importance of private actors in a regulatory system should not be underestimated. The rise of the private sector in the regulatory society Footnote 113 has led to a decentralized approach to regulation, diverging from the traditional notion of the regulatory state.Footnote 114 The co-governance theory acknowledges the important role of private actors and utilizes an institutional and policy-level framework that engages all involved parties in policymaking and execution.Footnote 115 While government regulations may have intrinsic drawbacks such as incompetency, corruption, and regulatory capture, private ordering and market mechanisms can fill in the gaps. Market players can address most market failures without government intervention, and private litigation can serve as a backup solution when the market cannot function perfectly.Footnote 116
Consumer protection co-governance is part of the overall state strategy of Co-governance, which is also prioritized in the policy goals of the CPC. This state strategy aims to improve the system of socialism with Chinese characteristics. President Xi Jinping has stressed the need to improve the social governance system through Party leadership, government responsibility, social coordination, public participation and upholding the rule of law.Footnote 117 For example, in terms of food and drug safety regulation, a modern governance system should prioritize co-governance and co-sharing as fundamental components.Footnote 118 In terms of consumer protection, co-governance should include business compliance, industry self-discipline, consumer participation, government supervision and social supervision.Footnote 119 Professional consumers fit perfectly into the co-governance strategy, considering their positive contribution to the regulation of the consumer market, especially the food and drug market.
b. Challenges and proposals for implementing the co-governance strategy
Although the co-governance system recognizes the quasi-regulatory role of professional consumers, it lacks clear guidance on how to fully involve them in protecting their rights and maintaining market order. Instead, there has been a trend to avoid the issue of professional consumers by not distinguishing them from ordinary consumers. The SPC instructs courts to focus on the purchase amount of defective products rather than other factors.Footnote 120 In other words, whether the purchase is for daily consumption or for profit, punitive damages will be awarded. Unlike in the past, the basis of calculation has been changed from the actual purchase amount to a reasonable amount. It is understandable that the SPC seeks to regulate professional consumers by applying a uniformly lower standard of adjudication. This standard would discourage profiteering by professional consumers without negatively impacting the reasonable compensation claims of ordinary consumers.
Nevertheless, the new SPC mandate may create further inconsistencies as it still fails to address the fundamental question of whether the skewed consumer protection should extend to professional consumers. On the consumer side, the SPC Guidelines provide insufficient protection. Instead, the legal system penalizes ordinary consumers who make purchases in excess of reasonable amounts because of concerns about professional consumers. It also leaves a considerable amount of discretion to local courts to decide what constitutes a reasonable amount. On the seller side, the SPC Guidelines fail to effectively deter and punish sellers of defective products due to the lower punitive damage standard. In summary, the new SPC Guidelines have not effectively addressed the issue of professional consumers. As a side effect, it may reduce consumer redress in general. In order to effectively utilize the positive influence of professional consumers under the co-governance strategy, China’s regulatory system should strike a balance between protecting their lawful conduct and punishing their unlawful conduct to ensure a sound market order.
This paper proposes to achieve this goal through a responsive regulatory system. Responsive regulation suggests that government should respond to the regulatory environment and the behavior of the regulated in deciding whether a more or less interventionist response is needed. Regulation should adapt to critical differences in industry structures, using different thresholds and types of regulation as appropriate.Footnote 121 Moreover, regulatory objectives are more likely to be achieved if regulators adopt a system of sanctions and use a choice of regulatory approaches that vary according to their degree of interventionism.Footnote 122 The use of the tit-for-tat strategy can be an effective approach to combining punishment and persuasion. Therefore, this article recommends differentiating rules for professional consumers from those for ordinary consumers. Stricter rules can be imposed on professional consumers once their identity has been confirmed by the legal authority. For example, agencies and courts could apply lower whistleblower awards and compensation standards to professional consumers than to ordinary consumers to discourage profiteering. In addition, courts could impose a higher burden of proof on professional consumers than on ordinary consumers. For example, courts could uniformly impose a two-step burden of proof on the professional consumer. The first step is to prove that the purchase is for living consumption needs, and the second step is to establish that the seller’s products do not comply with legal requirements.
2. Smoothing the public interest litigation mechanism
The pursuit of illegal market activities for profit is not unique to the Chinese market. What makes China different is its 30 years of regulatory development, which has been swinging back and forth over time. Legal uncertainty has added to the enigmatic nature of China’s professional consumers. Other jurisdictions have provided consumers with public interest litigation to legitimately pursue profits, such as representative actions in the European UnionFootnote 123 and class actions in the United States.Footnote 124 Similarly, China’s recent regulatory changes have indicated a trend toward promoting public interest litigation as a legal method to channel profit-seeking activities. However, due to the attention paid to the extortion of litigants, China’s public interest litigation system exhibits different features with Chinese characteristics. The following section assesses the effectiveness and future development of the two current mechanisms for public interest litigation.
a. Challenges in civil consumer public interest litigation
There are currently both of which are accessible to limited groups of litigants. The first mechanism is the civil consumer public interest litigation, which is initially accessible to consumer associations.Footnote 125 However, this type of public interest litigation has not been fully functional due to the inactivity of consumer associations. On average, consumer associations filed only thirty-two civil consumer public interest litigation cases per year from 2013 to 2021.Footnote 126 Although consumer associations are currently exploring effective ways to use the public interest litigation mechanism,Footnote 127 this statistic is inconsistent with China’s position as the world’s second largest consumer market. In response to the suggestion to broaden the range of plaintiffs in civil public interest litigation,Footnote 128 the Civil Procedure Law expanded the range of plaintiffs to include social organizations recognized by law or authorized by the NPC to represent numerous consumers (众多消费者).Footnote 129 However, the current legal system does not specify which social organizations, other than consumer associations, are eligible for civil public interest litigation. At present, there is no clear guidance to specify the standard of numerous consumers or which social organizations are authorized by law or by the NPC. Judges are still concerned that qualified social organizations may not be able to represent the large number of consumers in China.Footnote 130
b. Promotion of procuratorial public interest litigation
The second and more common mechanism of public interest litigation is initiated by public prosecutors. Procuratorates are able to initiate civil cases related to food and drug law infringementsFootnote 131 and administrative public interest litigations against administrative agencies that illegally exercise their authority or fail to act, causing harm to the national or societal public interest.Footnote 132 This scope is distinct from that of civil consumer public interest litigations, which covers all violations of consumer rights by sellers but excludes those by administrative agencies. Director of the SPP Civil and Administrative Prosecution Office provided an explanation for the special design of the case scope.Footnote 133 The issue of food and drug safety remains a significant concern for all sectors of society. Secondly, the procuratorate found that the failure and disorderly actions of the administrative bodies responsible for ensuring food and drug safety are significant contributing factors to safety issues in the food and drug industry. Thirdly, the central government’s restructuring team has made it clear that food and drug safety should be included in such litigation.
In general, consumer public interest litigations brought by procuratorates in the second mechanism outnumber those brought by consumer associations in the first mechanism. In 2021, procuratorates initiated over 30,000 public interest litigations in the field of food and drugs, with an annual growth rate of 10%.Footnote 134 Since 2020, the SPP has issued model cases concerning public interest in food and drug cases annually.Footnote 135 Recent developments suggest that procuratorates are increasingly involved in the second mechanism of public interest litigations, while legal authorities have been hesitant to improve the first mechanism for over a decade.
In conclusion, it can be inferred that China is concerned about abusive litigations and tends to endorse public interest litigations by public powers, thus it is more cautious in granting private actors legal standing to bring public interest litigation and does not actively promote consumer public interest litigations by social organizations. Instead, China is enthusiastic about developing those by procuratorates. It is reasonable to expect that the procuratorate is attempting to displace professional consumers through public interest litigation to fulfill its function of detecting illegal conduct and maintaining a fair market order.
3. The Chinese approach to reconciling co-governance with public interest litigation
It is interesting to note that the co-governance system of consumer protection, which endorses the private enforcement of public objectives by professional consumers, may contradict the promotion of procuratorial public interest litigation, which tends to displace professional consumers. This apparent contradiction, however, corresponds to the unique Chinese regulatory approach. China’s regulatory system is dominated by public power. Party leadership and government supervision always take precedence over social coordination and public participation.Footnote 136 Therefore, although the regulatory system recognizes the positive function of professional consumers in combating illegal businesses, it still upholds the dominant role of public power in maintaining market order. This trend, however, should not be interpreted as the suppression of professional consumers. Instead, China’s regulatory approach represents an innovative way to reshape professional consumers by reducing their profit opportunities while maintaining their positive functions.
VII. Conclusion
China’s regulatory path over the past 30 years has been volatile, making professional consumers unique to China. Myers McDougal famously stated that decisions are responses to precipitating events, which are best described as value changes in social processes.Footnote 137 China’s regulatory approaches have been a response to the rapid social and economic development in the consumer market. However, although China’s legal authorities have been attempting to grant proper legal standing to professional consumers, but it appears that the legal system has not been able to keep up with the rapid economic and social development and changing political directions. Given the paucity of discussion in English literature regarding this distinctive cohort of consumers and their distinctive regulatory framework, this paper aims to address this gap by introducing, analyzing and predicting the future of China’s regulations on professional consumers.
This paper commences with an analysis of the concept of professional consumers and a summary of three methods that have been employed for profit-making purposes over the past three decades. Based on a comprehensive review of representative regulatory records over the past 30 years, Part 3 generates a tendency chart to present the regulatory development trend since 1994. The paper divides China’s 30-year regulatory history on professional consumers into five periods: endorsement (1994–1997), prohibition (1997–2007), re-endorsement (2007–2016), re-prohibition (2016–2024), and mixed endorsement and prohibition (2024–). Despite the constant adjustments that occurred during each period, the five-period division demonstrates that there have been significant changes in the legal positions of professional consumers.
This paper presents a comprehensive analysis of the disputed issues that contribute to the legal inconsistency in Part 4. The author argues that due to a number of unresolved value judgments centered on the CRPL’s skewed protection of consumers, the legal system has failed to clarify key issues for both consumers and sellers, leading to fluctuations in regulations. Part 5 continues to explore the reasons behind the legal inconsistency by examining the legal framework in China. This paper presents a comprehensive examination of the interrelationship between the legislative, executive, and judicial branches, identifying three key factors contributing to regulatory inconsistencies. First, the legislature’s failure to anticipate the emergence of professional consumers has created a legal gap. Legislative departmentalization has enabled the administration and judiciary to exercise their respective legislative power, resulting in the production of more inconsistent legal documents. Additionally, discrepancies in legal interpretation of existing regulations between the administration and the judiciary have exacerbated inconsistencies in law enforcement. Finally, there is a loose link between the administration and the judiciary in the adjudication of compensation claims by professional consumers, leading to inconsistent results in cases with similar facts.
The author predicts that professional consumers will not become obsolete, but rather, will undergo a transformation as a result of recent breakthrough developments in 2024. Part 6 concludes by projecting two upcoming legal positions for the future of professional consumers. The first is the transformation of professional consumers into a crucial actor in the state’s newly implemented consumer protection co-governance strategy. In essence, regulating professional consumers is primarily a policy issue rather than a legal one. The co-governance principle will secure their existence. The second position is that of displacement by procuratorial public interest litigation. Although seemingly contradictory, these two positions exemplify a distinctive Chinese approach to implementing a co-governance strategy, which is characterised by the dominant role of public power.
Competing interests
The author has no conflicts of interest to declare.
Appendix I:
Summary of Legal Liabilities for Providers of Inferior or Counterfeit Products and Services
Appendix II
Attitude Changes in Media Coverage of Professional Consumers (PC)
Appendix III:
Attitude Changes in Legal Documents on Professional Consumers
Appendix IV:
Attitude Changes in Selected Judicial Decisions on Professional Consumers
Appendix V:
Pandemic-Induced Attitude Changes on Professional Consumers
Open access
