The Chinese State Administration for Industry and Commerce announced new regulations for online advertising that could have profound effects on users, businesses and advertising regulators worldwide. The move was inspired after a college student tragically passed away after taking cancer treatment he researched online. The treatment he used came top of a Baidu search. It turned out this position was not an indication of the quality of the treatment. It was a promoted link.
Currently, there are few rules determining the ‘recognition of advertising’ on search results. Many search engines offer some kind of distinction – but they are rarely obvious. Indeed, many use light coloured text positioned out of the users natural eye line.
In response, the State Administration for Industry and Commerce has ruled that:
- Paid-for search results be treated as advertising. Revenue generated from them is, therefore liable to an additional 3% tax as compensation “for engaging in cultural undertakings.”
- Paid-for search results for specific product categories (e.g. medicine and health treatment) must now be cleared or approved by State authorities before they can go live.
- No more than 30% of the search results on a page can be paid-for.
- Companies that fail to label promotional content as ads (text, images, hyperlinks and videos containing information promoting goods or services are considered online advertising) will face fines up to 100,000 yuan per violation according to one report.
- Email operators are prohibited from embedding ads at the bottom of emails.
- The rules also ban using apps and hardware to block, filter, or fast-forward ads.
Although the new rules do not come into effect until September, China’s biggest search engine Baidu felt the effects of this change. Baidu shares, which are listed on Nasdaq, dropped about 2.22% Friday to close at $159.