MOFCOM also released a statement on how it plans to promote the healthy development of commercial franchising in accordance with the current five year plan, and the National Development and Reform Commission issued a revised version of the Foreign Investment Catalogue that affected franchise investments.
Revised Commercial Franchise Registration Measure.
While there were hopes that there would be changes to the requirement that franchisors must have operated two units for one year to be registered as a franchisor with MOFCOM, there have been no changes that affect this rule yet. The amendments formally issued on December 12, 2011 and released on December 21, 2011, do clarify the nature of some information than must be provided to MOFCOM, and show an increased emphasis on enforcement of the registration requirement. Our translation of the revised Measures is available on the IDI web site.
In Article 6 the list of documents required in an application was changed to require an original copy of the first franchise agreement in China, and FIEs must now submit their approval certificates. Article 8 was amended to specify that only changes to three specific types of information need be reported to MOFCOM, and the scope of Article 9 has been narrowed. And finally Article 15(4) was amended to emphasize that the addresses of all franchisees in China shall be available on the MOFCOM web site.
Guidance on the Promotion of Franchising in Accordance with the Five Year Plan.
On January 10, 2012 MOFCOM issued the “Guidance on the Promotion of the Healthy Development of the Commercial Franchising in accordance with the Five Year Plan.”
It notes that China now has more than 4,500 franchise systems, more than any other country in the world. However franchising in China is still in a growth stage and there are a number of abuses.
To improve the situation MOFCOM proposes to improve the currency of its information systems, including the web site; and to increase its enforcement efforts, including violations of trade secrets and intellectually property rights and the Commercial Franchise Regulations. They want to increase the registration rate for franchisors.
They also plan to work on revisions to the main “Commercial Franchise Administrative Regulations” from the State Council and MOFCOM’s “Commercial Franchise Information Disclosure Administrative Measures,” and to introduce dispute resolution mechanisms. Specifically on enforcement they plan to make greater use of the resources of the local commerce departments. Our firm has already experienced the results of this new policy. We recently filed a complaint about a competitor of one of our clients who was franchising without registering. We soon received a copy of a letter from MOFCOM to the local commerce department requiring them to conduct an investigation to confirm our allegations, and to report by a specific date.
Revisions to the Foreign Investment Catalogue
On December 24, 2011 the National Development and Reform Commission, the successor to the former State Planning Commission, finally published the amended (2011) or “Foreign Investment Industrial Guidance Catalogue 2011.” The previous version was published in 2007.
Added to the “permitted” category were “wholesalers and retailers engaging in franchising, business management and distribution.” This clarifies the existing practice.
Paul Jones , IDI franchising country expert for China.