Lacking a framework

China's online economy is not exactly booming. Although the government is developing new legislation on digital signatures, encryption and cyber-payments, China still lacks the necessary infrastructure and regulations in areas such as cyber-security and consumer protection to truly take advantage of online activities.

Nevertheless, Chinese today are logging on in record numbers. Despite high access fees of up to US$2 an hour, online residents now spend a sizeable chunk of their salaries on surfing the web. Even the central government has taken its first tentative steps towards developing an internet presence. But as China enters the global online economy, what has it done to build a solid legal framework for online activities such as ecommerce or electronic communications? A look at China's new Contract Law shows that it is making an effort to incorporate new technological concepts into its developing legal framework.

The Contract Law introduces for the first time the question of con-tracts formed through modern means of communication. It addresses the concept of electronic data documents, including telegram, telex and facsimile, and specifically mentions contracts formed by e-mail exchange (for example, when a customer orders a product by e-mail and pays by cash on delivery), and by electronic data interchange (EDI), including inter-net and intranet contracts.

One problem with using electronic data documents and EDI is that it is difficult to determine when or if the documents have been received. The Contract Law tries to account for this new problem by identifying at what point offers or acceptances become binding. Offers and acceptances extended on ?non-specially designated systems,' such as internet contracts, bind senders once they enter the addressee's network. Senders relying on these systems are thus responsible for any loss of information on the worldwide web. Offers or acceptances extended on ?specially designated systems,' such as intranet transactions, are binding once the data enters the relevant intranet.

Because the Contract Law has relaxed previous rules regarding written requirements for contracts, electronic contracts may now be used in situations previously not allowed. Parties can now conclude contracts in written, oral, or in other forms such as electronic documents unless a written contract is requested by the parties, or when otherwise prescribed by laws and regulations. The requirement for written contracts has similarly been dropped for contracts with foreigners and, although included in earlier drafts, for contracts involving sums of more than Yn100,000.

What is more remarkable, however, is that when written contracts are required, such as in loan contracts or technology contracts, they may be concluded validly by e-mail exchange or through FDI. And although either party may request that a contract becomes effective only after a confirmation letter has been signed, cyber contracts no longer need to be signed or thus confirmed to be valid written contracts.

It is still unclear whether Chinese individuals and smaller companies without foreign trade rights have the capacity to enter into contracts with foreign entities over the inter-net. It is possible that restrictions on Sino-foreign trade may extend to product purchases on internet e-commerce sites and other internet services, such as stock information and hotel bookings. It remains to be seen whether courts and arbitrators will recognise these purchases as valid contracts or will declare them void.

A closer look at the Contract Law reveals that many of its provisions merely repeat previous laws or codify jurisprudence. The inclusion of provisions on cyber-contracts in the new Contract Law will benefit the development of e-commerce in China. However, China still lacks the solid legal, commercial and technical infrastructure necessary for e-commerce.

If the results of a recent experiment are any indication, China has a long way to go. When 12 volunteers were locked in separate rooms for 72 hours with only a computer, a small amount of cash and credit, and an internet connection, they were faced with waits of up to 10 days for authenticity checks on their debit cards. Cash on delivery was the only option for orders on most websites. Even so, cash didn't solve problems caused by a lack of sufficient infrastructure. One participant later told Nanfang Zhoumo that 24 cents worth of milk cost US$2.40 in cash for delivery fees. The results are currently being studied by the government.

Freshfields 1999. Freshfields is an international law firm. For further details, contact Lucille Barale in. Hong Kong (tel: +852 2846 3400 or e-mail: lbarale@ freshfields.com) or Matthew Cosans in London (tel: +44 171 936 4000 or e-mail: mcosans @ freshfields.com).