After two years of consideration and discussion, the People’s Republic of China’s Ministry of Commerce has issued a new franchise regulation that significantly improves earlier proposals.  The regulation, which becomes effective May 1, came about as a result of intensive efforts by the International Franchise Association’s work to build strong relations with the Chinese government through discussions, visit exchanges and ongoing official dialogue designed to encourage the growth and development of franchising there.

“The International Franchise Association’s board of directors’ decision many years ago to work closely with the Chinese government to foster franchising’s development has been a key component in China’s willingness to consider improvements in its approach to regulation,” IFA Pres. Matthew Shay said.  “China’s recognition of the importance of franchising to economic growth will enable IFA to engage in even more mutually-productive discussions.”

Shay said IFA’s focus on three key areas of importance reaped significant benefits.  First, an earlier requirement that a franchise system must have two directly-run units in operation within the country for more than one year no longer appears firm.

Secondly, franchisors now must only register, instead of being required to gain approval and obtain a license to franchise.  Registration, however, appears to be a process closer to filing a notice than to the procedures followed by U.S. states.

The third area of focus, while an area of much attention by IFA but one which little movement was expected, is the deletion from the earlier guidelines of franchisors’ joint-and-several liability for their suppliers’ products and services.

Few changes were made in the regulation’s disclosure obligations, but they now impose a mandatory, but unspecified cooling-off period and greater penalties for violations.

“The global community of franchising should be encouraged by these steps,” Shay said.  “IFA will continue to strive for effective and efficient business development through franchising.” 

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