The regulatory environment

The advertising industry is closely regulated by the government, as it is in many other countries . The basic law that governs the advertising industry in China is the Advertising Law of the People's Republic of China . There are also other bylaws that regulate the advertisement of specific lines of products such as tobacco , pharmaceutical products and medical equipment, amongst others. According to the Advertising Law, advertisements must not contain any of the following:

Source: China Internet Network Information Centre

• the national flag, national emblem or national anthem of the People's Republic of China;

• the names of state organs or the names of staff of state organs;

• such words as 'state-level', 'highest-level' or 'best';

• matters hindering social stability or endangering the safety of life or property, or harming the public interest;

• matters hindering the public order or violating good social customs ;

• pornographic, superstitious, offensive, violent or unpleasant matters;

• discrimination on the grounds of ethnicity , race, religion or sex;

• matters hindering environmental and natural resources protection;

• matters that are prohibited by laws and administrative regulations.

In addition, the law prohibits the use of comparison between competing products and also requires advertisers to submit advertisements for approval prior to publication to the 'competent administrative departments' “ the Administration of Industry and Commerce in the domicile of the advertising agent.

There are also regulations regarding the maximum amount of tax-free advertising outlay. The tax authority issued a regulation in May 2000 providing that the advertising outlay of an enterprise within the designated limit of 2 per cent of its total sales can be deducted from its income as non-taxable expenses. This regulation has partly affected the willingness of enterprises to spend on advertising. In 8 May 2001, the tax authority issued another regulation that relaxed the controls on tax-free advertising outlay for certain industries, such as pharmaceuticals , foods (including health care products and drinks), household toiletries, electrical household appliances, telecommunications, software development, integrated circuits, property development, sports and cultural activities and shopping malls of furniture and building materials.