China’s New Product Quality Action Plan Likely Leads to Increased Enforcement Actions
On November 10, 2022, China’s State Administration for Market Regulation (SAMR) and 17 other central government agencies and departments jointly released the Notice on the Action Plan for Further Improving the Quality of Products, Engineering and Services (2022-2025) (Action Plan) with immediate effect. Consistent with regulatory enforcement trends across China in recent years, the Action Plan requires these industry regulators to work toward enhancing regulatory enforcement across multiple industries, including industrial equipment and components, consumer products, construction materials, and food and agricultural products, etc.
Product quality and consumer protection continues to be one of the key regulatory focus areas in China given the size of the China market and the increase in consumer awareness and assertiveness. Regulatory agencies such as SAMR and their local branches undertake various surveillance actions against selected products and manufacturers across different sectors, including on-site inspections, sampling inspections, and unannounced inspections to verify whether manufacturers and distributors and retailers are compliant product quality and safety wise.
Increase in regulatory enforcement actions
Over the three-year period from 2019 to 2021, SAMR and its local branches across the country continue to conduct a large number of sampling inspections/testing of products in different sectors to assess their compliance with product quality and safety standards or specifications or to detect potential product defects. A wide range of products were subject to these inspections, ranging from consumer goods such as cosmetics, appliances, clothing, to light and heavy industrial equipment and products, and both foreign and domestic manufacturers were targeted. Typical penalties imposed on non-compliant products comprised of recall of the defective products and fines.
As reflected in the below charts, the overall number of inspections conducted, the categories of products covered, and the number of non-compliant products identified by SAMR during the past three years (2019 to 2021) remains high.
In addition, SAMR and local Public Security Bureaus (PSB) have been conducting unannounced inspections on companies for potentially serious violations. In serious cases, SAMR have either imposed various sanctions (recall of products, revocation of business license, etc.) against non-compliant companies and individuals identified in these inspections or reported the cases to PSB for criminal investigation.
With the imminent implementation of the Action Plan, we expect that there will be an initial period of heightened and concentrated enforcement actions against product quality/safety related violations by SAMR and other agencies as they look to implement the Action Plan particularly during its initial 12 to 18 months of implementation. Historically, a number of industries such as food, consumer products, healthcare, energy, automotive, and industrial equipment are primary targets of regulatory enforcement campaigns. In addition, SAMR’s annual work plan on quality inspection also provides useful reference on the types of products that are likely to be targeted in the upcoming year.
Outlook
The Action Plan calls on a multiple number of government departments and agencies to expand product quality related regulatory enforcement further than what they have already been doing in the past. The possibility of joint enforcement actions by multiple agencies will also likely to increase. To put themselves in the best position to effectively respond to potential enforcement actions, it is not enough for manufacturers to simply review their quality control and management processes alone:
- A coordinated review across multiple disciplines (Legal, Regulatory, Quality, etc.) should be conducted (ranging from product quality management, product testing, product recall, regular review of applicable national and industry specific product standards, crisis management, dawn raid preparation and readiness, etc.),
- followed by regular review, and enhancement and updates to these processes and protocols, and
- regular training to employees across these disciplines.
