Operating a franchise in China

By 2030, China’s franchising market is projected to reach 6 trillion yuan with a penetration rate exceeding 75%, driven by supply chain finance and international expansion. The overseas market size for Chinese brands is expected to exceed 200 billion yuan.

The fastest-growing sectors are food and drink, retail, and education, with emerging areas like green franchising and silver trading contributing over 40% of the growth. The market is pivoting from scale expansion to quality competition, with leaders using digital tools to optimise operations. International brands like McDonald’s and KFC are adopting hybrid models, while Wallace’s smart store inspection system covers its entire store network.

Read more on international franchising

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• Operating a franchise in France
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• Operating a franchise in Ireland
• Operating a franchise in Luxembourg
• Operating a franchise in Spain
• Operating a franchise in the Netherlands
• Operating a franchise in South Africa
• Operating a franchise in Singapore
• Operating a franchise in Australia
• Operating a franchise in the UAE
• Operating a franchise in Saudi Arabia
• Operating a franchise in Qatar

Robust growth in county-level markets has driven share of franchised stores in third tier and lower cities from 38% in 2019 to 52% in 2024. Supply chain optimisation, such as centralised procurement by Juewei Duck Neck, is key to reducing costs and improving efficiency. The focus on health and safety post-Covid is driving the market towards anti-cyclicality and sustainability, with green franchising and ESG investments becoming major trends.

Legal considerations

Franchising agreements in China are primarily governed by the Regulations on the Administration of Commercial Franchises. There are additional regulations that may apply, including: 

• the Commercial Franchise Registration Administrative Measures;
• Ministry of Commerce (MOFCOM) Decree No. 5 of 2011, 2023 revised (Registration Measures);
• Commercial Franchise Information Disclosure Administrative Measures, Decree No. 2 of 2012 (Information Disclosure Measures),
• Foreign Investment Law of the PRC (2019); and
• the Special Administrative Measures for Access of Foreign Investments (Negative List) released by MOFCOM. 

Other general laws, such as the general contractual principles found in chapter three of the PRC Civil Code (the Contract Law), Anti-Unfair Competition Law and Anti-Monopoly Law also apply.

While there are no universally binding codes or standards, franchising associations, such as the China Chain Store & Franchise Association (CCFA), provide guidance and support for the industry.

Structure and set-up

A franchisor is generally expected to operate an enterprise with a strong track record and is required to have been operating at least two outlets for a year, known as the ‘2+1 rule’. There is no requirement for them to be wholly locally owned, but registration with MOFCOM is mandatory. Franchisees can be individuals or companies and should comply with general business registration and legal requirements applicable in China.

Non-compete clauses are enforceable during the franchise term and, under certain conditions, after termination, provided they are reasonable and do not unduly restrict trade, subject to good faith requirements under the Civil Code.

Franchisors may suggest minimum resale prices, but price-fixing could violate China's Anti-Monopoly Law. Enforcement depends on whether the restriction is deemed anti-competitive. The PRC’s amended Anti-Monopoly Law came into force on 1 August 2022. The existence of a resale price maintenance provision in an agreement is not sufficient to be considered as a breach. However, the burden of proof of no anti-competitive effects falls on the business operator if it wishes to invoke the “safe harbour” rule.

Franchise agreements are flexible in term length, but renewal provisions must comply with the Contract Law to ensure fairness.

Agreements must be registered with the MOFCOM within 15 days of signing the first franchise contract, with the list of documents to be submitted set out in article 6 of the Administrative Measures. International franchisors should register with MOFCOM in Beijing, rather than with local MOFCOM departments. Franchise agreements must meet disclosure obligations outlined in the regulations.

Agreements and associated materials must be in Chinese, with translations provided for foreign parties. Franchisors must provide a franchise disclosure document (FDD) to prospective franchisees at least 30 days before signing the agreement, disclosing information specified in article 5 of the Information Disclosure Measures. Registration of the FDD itself with authorities is not required.

Intellectual property

Branding and logo usage must align with trade mark and intellectual property laws. Trade mark licences must be recorded with the China National Intellectual Property Administration (CNIPA). Trade marks registered outside of China are generally not protected without a local registration.

China operates a ‘first to file’ system. Registration with the CNIPA takes six to nine months if the application proceeds smoothly, and protection lasts 10 years with renewal options. Early registration is crucial due to active trade mark squatters and franchisors should consider registering Chinese character versions of their marks.

Protection is enforced through administrative, civil or criminal procedures. Franchises can protect copyright, design rights and patents under China's intellectual property laws, and can protect trade secrets under the Anti-Unfair Competition Law. Confidentiality agreements and measures should be adopted for robust protection.