China's Advertising Sector: Reflecting The Cultural And Social Realities Of The World's Fastest-Growing Economy

Editor: Would each of you tell us about your professional background?

Du: I am a New York-based partner with Jun He Law Offices, which is headquartered in Beijing. I joined the firm in 2001. We mainly focus on representing foreign companies doing business in China, in addition to some Chinese enterprises. Over the years Jun He has represented a variety of multinational corporations.

Jun He began with five people in 1989, and by 2000 it consisted of about 50 lawyers. Today we have more than 250 lawyers and are widely considered one of the top law firms in China. Just a few years ago most foreign investment in China took the form of direct foreign investment; today, it is mergers and acquisitions that receive most of our attention.

Urbach: I am a partner in and co-chair of Davis & Gilbert's Advertising, Marketing and Promotions Department, managing a team of over 20 lawyers who concentrate in the area. I have been at the firm for most of my professional career. I specialize in all aspects of marketing, advertising, promotion and communications law and represent many advertising and diversified marketing agencies of all sizes and types. I work with domestic and international clients.

2006 marks Davis & Gilbert's 100th year in business, and as our clients have grown and evolved, so has our firm. We remain focused on the advertising, marketing, communications and promotion industries, but with so many of our clients moving into the global economy - China, in particular - we are moving onto that stage with them.

Editor: Please tell us about the advertising market in China.

Du: China's advertising market is the largest in Asia excluding Japan. In terms of advertising spending, it is a market over twenty billion U.S. dollars. In recent years the growth rate of this market has consistently exceeded ten percent per year. That is above both the international average and the average growth rate in developing markets.

Urbach: Another way of looking at this is through the eyes of our clients. In a short period of time China is going to have the world's largest economy - a market-driven economy - and the world's largest middle class. Advertising and marketing constitute a key feature of this development. In a consumerist economy, advertising and marketing provide the information that allows businesses to grow and compete. Doing business in China is precisely where our clients wish to be, and we with them.

Editor: Is the advertising industry dominated by a few large players, or is it fragmented?

Du: In China we are talking about two sectors, one represented by multinational corporations and the other by domestic Chinese enterprises. Of the former, the largest advertiser is Procter & Gamble, which sells a great many consumer products in China. P&G spends around $800 million on advertising for Oil of Olay alone. Three or four other domestic companies have advertising budgets in excess of $100 million.

With respect to agencies, the top four are large international advertising groups which account for over 40 percent of the advertising dollars spent in China. The rest are both multinational and domestic, and there are a considerable number.

Urbach: At the moment, the most significant advertisers in China are multinationals who are in the process of bringing new products and services to market. That may change as Chinese enterprises begin to grow in their own market and further become major exporters of their products and services. China becoming a consumer economy has implications both domestically and overseas from a business and legal perspective.

The multinationals, who require sophisticated advertising services on a large scale, are intent on projecting their brands, which is why they have turned to the stewards of their brands - the global advertising agencies. The global agencies are not simply interested in importing talent from the U.S. or other countries, but rather in hiring and training talented Chinese. Advertising and marketing must reflect an understanding of local culture, and this is most certainly true in China.

Editor: How is the Chinese advertising market regulated?

Du: The legal foundation for the advertising industry is the Advertising Law of the People's Republic of China, which was adopted in 1994 and went into effect in 1995. Under the statute, various regulations have been promulgated by a variety of agencies, including the counterpart of the FDA. Enforcement is provided by the State Administration for Industry and Commerce. This convergence of jurisdictions constitutes the regulatory framework for the advertising sector in China.

Editor: There are prohibitions on misleading content, obscenity, superlative wording, and socially destabilizing content in Chinese advertising. How do these compare with similar prohibitions in the U.S?

Du: There are several distinctions to be made. There are some ambiguities in the Chinese statute that, in all probability, would not pass constitutional muster in the U.S. In addition, there are ideological connotations that give the government considerable discretion with respect to advertising content.

In practice, the standards for both regulating the industry and enforcing the law have become increasingly transparent. The trend is toward the imposition of some restraint on the discretionary power of the enforcement authority. Nevertheless, China remains at large a country under one-party rule, and centuries of culture play a role in the discretion accorded decision-makers. For example, "socially destabilizing content" may cover both political content and cultural content. Similarly, the law does not distinguish between pornography and obscenity, so drawing a line between the two - so important in U.S. law - is essentially meaningless in China. And, yes, both are prohibited.

Urbach: In the U.S. the primary focus of advertising regulation is ensuring that the advertising is not deceptive, misleading or false. China adds another element - is the advertising politically inappropriate? This regulation of advertising content would raise difficult constitutional law issues in the U.S. An injection of government policy represents a fundamental difference between China and the U.S.

Notwithstanding a clear acceptance of the economic benefits of a free market economy, China's unique historical and current political framework must be taken into account. There is a very delicate interplay between the government's desire to encourage the country's emergence as a global economic power and that of maintaining control - often through self-regulation - over what is culturally and politically permissible. This balancing process will both drive and be driven by a rising middle class with strong consumer interests.

Editor: In the U.S. there is a great deal of scrutiny given to advertising that is directed at children. Does a similar regime apply in China?

Du: There is, although this is mainly based on self-regulation. You cannot advertise products that are harmful to the physical or mental well-being of children or to moral standards. "Moral standards" is a somewhat ambiguous term and open to interpretation. In addition, anything that might pressure parents to buy products of this sort is prohibited, as is any advertisement which is likely to diminish children's respect for their elders. The latter is, no doubt, a Chinese cultural imperative.

Urbach: In the U.S. there has been a longstanding acceptance of marketing directly to children. Though there are clearly issues that need to be addressed, as happened when we worked with CARU (the Children's Advertising Review Unit of the Council of Better Business Bureaus) in the recent modification of the children advertising guidelines. Marketing to children is a fundamental fact of life in the U.S., and it is beginning to be a consideration in China. Both countries may be able to learn from each other on the issue of marketing to children.

Editor: How about the advertising of healthcare products? And sensitive items such as alcohol and tobacco?

Du: The most regulated advertising has to do with medical devices, pharmaceuticals, medical services, and the like, as well as tobacco and alcohol. The advertisements for those products need pre-approval from the relevant government agencies.

Urbach: Advertising is often reflective of cultural and social reality. Smoking is accepted in China more so than in the U.S., and each country's tobacco advertising laws derive from these different foundations.

Du: China has a large smoking population. Nevertheless, the government is well aware of the healthcare issues and has placed a number of restrictions on tobacco advertising. Tobacco products cannot be advertised on radio or television, and even the billboards, where it is permitted, cannot use the image of someone smoking and must contain a warning statement.

Editor: You have mentioned self-regulation. How does this work?

Du: Self-regulation in the advertising industry, as in other industries, does not play such a vital role as it does in the U.S. It is supervised by a variety of government agencies and by the China Advertising Association, the CAA, which is the one industry organization permitted. Many of its officials are appointed by or under the auspices of the governmental agencies most concerned.

Urbach: The principal benefit of self-regulation is that it sidesteps government interference. The problem with government regulation is that, very often, it is concerned with an issue that has passed. In China, self-regulation will become more important when the various business sectors prove that they can regulate themselves and be sensitive to the prevailing cultural and social realities. For continued responsible growth, China will need self-regulation that is both effective and predictable.

Editor: Even if the right laws are on the books, a legal regime may be undermined if they are not enforced consistently by a fair and impartial administration or judiciary. How is China doing in this regard?

Du: Consistent enforcement has always been an issue in China. There are two levels of enforcement: advertising review - censorship in the U.S. - and enforcement through government agencies. The latter has become much more transparent over the years, and state agencies often publish their enforcement cases online, which is a major step forward. With respect to censorship, the CAA plays a big role although not an official one. The media may also reject any advertising content almost in their sole discretion. In recent years there has been substantial progress, but China still has a way to go before consistent enforcement is an accepted reality.

Editor: What is the role of lawyers in the area of compliance with media censorship requirements?

Du: Lawyers play two roles: as part of the review process and as counselors when problems arise. Many of our clients submit their ads for lawyer review prior to publication, and they can also submit for CAA review or newspaper review, which has served to diminish the role of lawyers to some extent. Lawyers very often see things differently from the CAA or the media, however, and they can function as a positive force for change.

Urbach: Lawyers who possess knowledge of the market are extremely valuable. The laws may change, but many of the issues remain constant: how to provide legal services that are effective and further provide added value; how to translate the nuances of a specialized area of the law based on the local law; and how to be a real partner to your client. All of this is very new, yet at the same time very old.

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