China's Long March to A Franchise Law: The 2007 Franchise Regulation

Abstract

Within a decade of the introduction of Deng Xiaoping 's 'open door• reforms which signaled the end of China's international isolation under Mao Zedong, franchising was introduced to China, in the late I980s, by the US franchising fast food pioneers KFC and McDonald's. However, it was the implementation a decade later of the I997 Interim Franchise Measures which was the major catalyst for sector development through prescribing a rudimentary regulatory environment for the development of franchising. The Chinese franchise sector has grown rapidly since then as domestic and foreign companies have exploited the opportunities inherent in the world's fourth largest and fastest growing economy. With over 2600 systems China is already the world's most franchised country in terms of system numbers, although in per capita and contribution to GDP terms the sector is still at an early stage of development.

A decade after the introduction of the I997 Interim Franchise Measures, China has a new franchising law. In February 2007, the State Council issued a Regulation on the Administration of Commercial Franchises having effect from I May 2007 which, for the first time, subjects domestic and foreign invested franchisors to a uniform regulatory regime.

This paper reviews the development offranchising in China and the laws, driven by WTO accession commitments, which have impacted on this development. In particular it evaluates the 2007 Franchise Regulation and assesses its impact on the future development offranchising in China.

Keywords: Franchise Regulation, China, WTO

JEL Classification: K29