Foreign companies that wish to engage in manufacturing in China and selling products to Chinese customers need to keep into consideration their exposure to product liability claims. In an attempt to battle growing concerns on domestically produced goods, the Chinese government has over the last years tightened the legal framework for product quality requirements and consumer action. Moreover, in 2010, a new Tort Liability Law was introduced, which specifically deals with product liability.
The new product liability rules make both producers and sellers of defective products liable for damage caused by the defect. Injured consumers have the right to pursue either the producer or the seller, with rights of contribution for the pursued party to seek recovery of its losses from the party responsible for causing the defect, including from third parties involved in the supply chain. The law also permits the recovery of punitive damages if a product caused death or serious injury to a consumer, while the producer or seller was aware of the defectiveness of the product.
In addition, the new law deals with remedial actions if a defective product has been put into circulation. It requires the producer or the seller to, in a timely manner, take remedial action such as the issuance of a warning or recalling the product. If this requirement is not – or insufficiently – met, the producer or seller can be held liable by an injured party. This provision has led to a significant expansion of recall obligations in China, which previously only applied to pharmaceuticals, foodstuffs and other specified categories of products.
These developments may impact foreign companies with manufacturing facilities in China. Although this type of litigation has been limited so far, a growing sense of consumer rights combined with a stronger legal framework to enforce these rights, might lead to cases being initiated against foreign invested companies in China. Therefore, it is of growing importance for their directors and senior management to be aware of the developments on product quality standards, product liability, recall measures and consumer protection.