Source: CCTV.com
05-01-2007 12:01
A new regulation on commercial franchising in China takes effect starting from May 1st. The new rule better administers brand owners and brand shop runners. It aims to better regulate China's franchise market.
Starting from May the 1st, the new regulation on commercial franchising in China takes effect. The initiative was announced in early February by the Ministry of Commerce.
The new rules plans to better regulate the franchise market in China by setting up clear requirements for entry and operation, for both domestic and overseas brands. Experts believe the new rules will help curb fraud and protect investors' interests.
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Pei Liang, secretary-general to China Chain Store & Franchise Assn. said "The franchise business has developed well in China. But some problems still remain. One of the major concern is that after joining the brand, some small and middle investors encounter brand owners who fail to fulfill their side of the deal. There's even some cheating in the market. So the new rule is necessary to help better regulate the market. "
According to the new rule, only corporations and other legal entities can be a franchisor. Franchisors must have mature business models and have resources to provide support. It must have owned and operated two locations for at least one year before it can offer franchising agreements.
In addition, franchisors must disclose sufficient information for the franchisees to make an educated investment decision.
Franchisors are required to register at the administrator within 15 days of signing their first franchise agreement. Penalty for violation will be a fine of up to 500 thousand yuan.
The regulation also say franchisors' that places false advertisement could also suffer a separate fine of as much as 300 thousand yuan.
The franchise business has had a history of over 100 years in other countries. But it only arrived in China in the 1990's. Now the number of franchisors has reached 2,600 brands, including KFC, Macdonald, Hualian, Quanjude, Yonghe and Hualian. With 160 thousand chain stores, the operations cover over 60 industries.
Commercial Franchising is relatively new in China, compared to other businesses. But it has already seen rapid growth. With this new regulation, China's franchising business is expected to further enjoy steady growth, and popularity.
New Franchise Regulation
(effective May 1st, 2007)
- Only corporations and other legal entities can be a franchisor.
- Franchisors must have owned and operated at least two locations for at least a year.
- Franchisors must disclose sufficient information to franchisee.
- Franchisors must register at the administrator within 15 days of signing their first franchise agreement.
- Franchisors that place false advertisement could suffer a fine up to 300 thousand yuan.
Source: Ministry of Commerce
Editor:Du Xiaodan
