Before buying a franchise, check its Ministry of Commerce filing, obtain written disclosures and specify a withdrawal period
A Chinese franchisor must have at least 2 directly operated stores running for at least 1 year and file within 15 days of its first franchise contract. Before signing, it must disclose 12 categories, including fees, deposit refunds and existing outlets' performance. Walk away if no filing can be found, disclosures are refused or payment is demanded before seeing a contract.
What it takes
Free. Check China's Commercial Franchise Information Management System for the franchisor's filing. Request written disclosures and the contract before signing. Allow a few hours.
What you may gain
The franchisor must have at least 2 company-operated outlets with over 1 year's operation and file with the commerce authority within 15 days of the first franchise contract. Failure to file carries RMB 10,000–50,000; continued failure after the deadline carries RMB 50,000–100,000 and public notice. Before signing, 12 written disclosure categories are required, including types and amounts of fees, conditions for deposit refunds, numbers and performance of existing franchises, summaries of audited accounts for the preceding 2 years, and litigation/arbitration over the preceding 5 years. The contract must give the franchisee a period after signing during which unilateral termination is possible. Concealed or false information permits termination. These Chinese rules apply from May 2007.
Context & considerations
Leave if filing is absent, disclosure is refused or payment comes before contract access. The regulation says only “a certain period” for unilateral withdrawal, so require a specific number of days in the contract. Ask where claimed average sales, gross margins and net profits of existing franchises come from; disclosure rules require the franchisor to identify its sources.
Research & references
State Council of China (2007). Regulations on the Administration of Commercial Franchises, Order No. 485, Articles 7, 8, 12, 22, 23 and 25. https://www.gov.cn/zhengce/zhengceku/2008-03/28/content_4179.htm; Ministry of Commerce (2012). Commercial Franchise Information Disclosure Measures, Order No. 2 of 2012, Articles 5 and 9. http://www.gov.cn/gongbao/content/2012/content_2177025.htm; Ministry of Commerce. Commercial Franchise Information Management System. https://txjy.syggs.mofcom.gov.cn/