Slow Train Coming: New Draft Regulations on Franchising

Draft Franchise Regulations offer a glimpse of things to come for foreign frachisors. Though the Draft Franchise Regulations offer more details about franchise operations in the PRC, there is still a long way to go before franchise operations are expressly recognized by the central government.

Recently, mainland newspapers have reported that the central government has circulated a set of draft franchising regulations, the Draft Regulations for Administration of Franchising Chain Operations (Draft Franchise Regulations). While China issued measures governing franchise transactions in 1997, the measures and related legislation did not explicitly address cross border franchises. However, the absence of regulatory direction has not handicapped the growth of foreign franchises in the PRC over the last two decades. Indeed, by the end of 2000, China had attracted more than 400 franchisees operating over 1,000 outlets in more than 30 sectors.

The Draft Franchise Regulations suggest that, on the eve of China's accession to the World Trade Organization, the government plans to standardize the regulatory treatment of all franchise relationships, whether they be domestic or cross border transactions. However, the timetable for the promulgation of the Draft Franchise Regulations remains uncertain at best, with some estimates anticipating a further two years before enactment. Nevertheless, the Draft Franchise Regulations do give foreign franchisors a sense of the shape of things to come.