The Chinese Franchise Market Landscape

The commercial franchise market in the People’s Republic of China (PRC) is characterised by its significant scale and rapid development. The modern franchising model was introduced to China in 1987 with the arrival of the international fast-food brand KFC. This was followed in the 1990s by the adoption of the model by prominent domestic enterprises, including the restaurant chain “Quanjude” and the sportswear brand “Li Ning”. 

Since the implementation of the Regulation on the Administration of Commercial Franchises (hereinafter “the Regulation”), China’s franchising industry has maintained a stable and rapid development trend, characterised by robust growth in sales, store expansion and significant economic impact.

According to the “2024 Top 100 Franchise Chains in China” list, the total sales of the top franchises reached CNY504.6 billion, a year-on-year increase of 17.3%. The total number of chain stores surged to approximately 257,000, reflecting a remarkable year-on-year growth of 26%. Among these, franchised stores accounted for 222,000, an increase of 55,000 compared to the previous year, representing a year-on-year growth of 33.3%.

The market is highly diversified across multiple sectors. The top 100 companies operate in ten major categories, including catering, accommodation, automotive aftermarket, training and education, lifestyle services, beauty and wellness, specialty food retail, non-food retail, business services, and convenience stores. The industry is also a crucial employment driver, providing about 4 million jobs. On average, each top franchise company operates 2,550 stores. The total social investment driven by these enterprises exceeded CNY170 billion.

A key strength of the leading franchises is their mature management systems and professional expertise, which have enabled sustainable growth. In 2024, 50% of the top brands had been operating for over 20 years. The average franchise renewal rate stood at 85%, and the multi-unit ownership rate was approximately 30%.

The “2024 Commercial Franchising TOP300” report further highlights the industry’s expansion. The total number of stores among the TOP300 enterprises reached 830,000 – a significant increase of 30.73% compared to 2023, marking the highest growth rate in recent years. Notably, the number of brands with over 10,000 stores doubled from nine in 2023 to eighteen in 2024.

Key International and Domestic Brands Active in the Market

The Chinese franchising market is vibrant and competitive, with strong participation from both domestic and international brands.

Domestic leaders

Well-known Chinese brands have achieved massive scale and consumer loyalty. In the catering sector, brands like Mixue Bingcheng, Heytea and Luckin Coffee have extensive networks. Retail and convenience stores are dominated by powerful domestic chains such as Meiyijia, Hongqi Chain and Bianlifeng. In the automotive aftermarket, major domestic platforms like Tuhu and Carzone are significant players.

International giants

Global brands continue to thrive and expand their footprint in China. The catering landscape is heavily influenced by giants like McDonald’s, KFC, Pizza Hut, and Starbucks. International convenience store chains, including 7-Eleven, FamilyMart and Lawson, maintain a strong presence in major urban centres.

This combination of deeply rooted domestic champions and adaptable international corporations defines the dynamic nature of China’s franchising market, driving innovation, consumption and employment across the country.

The Regulation was promulgated by the State Council of the PRC and has been effective since 1 May 2007; this is the foundational and highest-level administrative regulation specifically governing franchising activities nationwide. 

The Civil Code of the People’s Republic of China (hereinafter the “Civil Code”) provides the fundamental legal principles governing all civil and commercial contracts, including franchise agreements. Provisions on contract formation, validity, performance, liability for breach and interpretation are directly applicable and serve as the general law underpinning franchise relationships.

The Administrative Measures for Archival Filing of Commercial Franchises (hereinafter “the Filing Measures”) were issued by the Ministry of Commerce (MOFCOM). This departmental rule specifies the procedures and requirements for the mandatory post-contractual registration of franchise operations. The most recent version was revised and became effective on 29 December 2023. 

The Administrative Measures for the Information Disclosure of Commercial Franchises (hereinafter “the Disclosure Measures”) were also issued by MOFCOM. This departmental rule provides a detailed elaboration of the franchisor’s extensive pre-contractual disclosure obligations to prospective franchisees. 

Article 3 of the Regulation defines “commercial franchise” as a business activity where an enterprise (the “franchisor”) that owns business resources licenses these resources to another business operator (the “franchisee”) through a contract. The key business resources include registered trade marks, enterprise marks, patents, and proprietary technology (know-how). Under the agreement, the franchisee is required to conduct its business operations under a uniform business model prescribed by the franchisor and, in return, pays franchise fees.

The franchisor must be an “enterprise”. No entity or individual other than enterprises may engage in the franchise business as a franchisor.

Method and Timing of Disclosure

China has a mandatory and detailed set of franchise disclosure requirements. The obligation is established by the Regulation and further specified in the Administrative Measures for the Information Disclosure of Commercial Franchise.

Pursuant to these, the franchisor must provide the disclosure information to the prospective franchisee in writing, and the disclosure must occur at least 30 days before the franchisee signs the franchise agreement. This serves as a mandatory waiting period.

Disclosure Items

The franchisor must provide a comprehensive set of information as set out below.

• Basic information about the franchisor and its primary business activities:
1. the franchisor’s name, address, contact information, legal representative, general manager, amount of registered capital, business scope, as well as the number, address and telephone number of the existing direct sales stores;
2. a brief introduction to the franchisor’s engagement in the franchised business operations;
3. basic information about the archival filing of the franchisor;
4. where an affiliated company of the franchisor provides the franchisees with products and services, the basic information of this affiliated company; and
5. information about any bankruptcies and/or applications for bankruptcy of the franchisor or of its affiliated companies during the previous five years.
• Information on the franchisor’s registered trade marks, patents, and other business resources:
1. a written statement to the franchisees regarding the information about the registered trade marks, enterprise marks, patents, know-how, business mode and other business resources which it can provide;
2. if the owner of the above-mentioned business resources is an affiliated company of the franchisor, the basic information of the affiliated company shall be disclosed, and the franchisor shall simultaneously specify how to deal with the franchised business operation system once the contract on authorisation to the affiliated company is cancelled; and
3. information about any lawsuits or arbitrations involving the franchisor’s (and/or its affiliated companies’) business resources, such as registered trade marks, enterprise marks, patents and know-how.
• Details of all franchise fees, their purpose and payment methods.
1. The variety, amount, rates and terms of payment of the fees which the franchisor charges and charges in lieu of the third party; if the aforesaid matters cannot be disclosed, an explanation shall be made; if there is no uniform criterion for the fee charge, the highest and lowest rates shall be disclosed and an explanation shall be made.
2. The conditions for collection and refund of security, as well as when and how to refund the security.
3. If the franchisees are required to pay the fees before a franchise contract is concluded, a written statement indicating their purposes and under what conditions – and how – such fees shall be refunded to the franchisee.
• Information on the prices and conditions for providing products, services and equipment:
1. whether or not the franchisees must buy products, services or equipment from the franchisor (or its affiliated company or companies) as well as the relevant prices, conditions, etc;
2. whether the franchisees must buy products, services or equipment from the supplier(s) designated (or permitted) by the franchisor;
3. whether or not the franchisees are allowed to choose other suppliers, as well as the requirements for those suppliers.
• Details of the support services offered to the franchisee (eg, training or technical support):
1. the specific contents, terms of provision and execution plan of business training, including where, when and how long the training is to be held; and
2. the specific contents of technical support, describing the table of contents of the brochure of franchised operations and the corresponding number of pages.
• Information on the franchisee’s operational requirements and standards:
1. the form and content of guidance and supervision conducted by the franchisor on the business operations of the franchisees, the obligations that the franchise must perform, and the consequences of any franchisee’s non-performance of its obligations; and
2. whether the franchisor will bear joint and several liabilities for the complaints of – and be responsible for compensating – the consumers, and how to bear such liabilities.
• Information about the investment budget for the franchise outlets.
1. The investment budget may cover expenses including membership fees; training fees; expenses for real estate and decoration; expenses for purchasing equipment, office supplies, furniture, etc; initial inventory; expenses for water, electricity and gas; expenses for obtaining any necessary licence and other government approvals; and working capital.
2. The sources of and an estimated basis for the aforesaid data on expenses.
• Relevant information about the franchisees within the territory of China.
1. The existing and expected number of franchisees, distribution areas, scope of authorisation, whether or not there is any solely authorised area (if any, the expected concrete scope shall be indicated).
2. Information about the evaluation of the business status of the franchisees. The franchisor shall disclose franchisee information such as their actual or expected average sales volume, gross profits and net profits, and shall simultaneously state the sources and length of time of the aforesaid information as well as the franchise outlets involved; if the information is estimated, the franchisor shall give the estimation basis and shall expressly state that the actual business operations are likely to be different from the estimates.
• Abstracts of the franchisor’s recent two-year financial statements audited by an accounting firm or auditing firm, as well as the abstracts of the auditing reports.
• Information about major lawsuits and arbitrations relating to the franchised business operations of the franchisor within the past five years:
1. the term “major lawsuit or arbitration” refers to a lawsuit or arbitration with a value in dispute of CNY500,000 or more;
2. basic information about such lawsuits, where they are filed and their results if disclosed.
• Information about the records of any serious illegal business operations of the franchisor and of its legal representative:
1. being fined not less than CNY300,000 but not more than CNY500,000 by the administrative law enforcement department; and/or
2. being subject to criminal liabilities.
• The text of the franchise contract:
1. a sample franchise contract; and
2. if the franchisor requires a franchisee to sign any other franchise related contract with it (or its affiliated company or companies), it shall simultaneously furnish a sample of such contract.

Cooling-Off Period

Distinct from the disclosure period, the franchisee has a statutory “cooling-off” period during which they can unilaterally terminate the franchise agreement after it has been signed.

Right to Terminate and Claim Damages

If a franchisor conceals relevant information or provides false information during the disclosure process, the franchisee has the right to terminate the franchise agreement. The franchisee may also seek compensation for any losses incurred as a result of the non-disclosure or misrepresentation pursuant to the Civil Code.

Administrative Fines

The competent administrative authority (typically the Ministry of Commerce or its local counterparts) can impose penalties on the franchisor. These include issuing an order to rectify the violation and imposing fines ranging from CNY10,000 to CNY100,000, depending on the severity of the offence. In serious cases, a public announcement of the violation may be made.

The legal texts do not specify broad exemptions from the mandatory disclosure obligation, such as for sophisticated franchisees or minimal investments.

However, according to Article 4 of the Disclosure Measure, the obligation to provide a full disclosure document at least 30 days before signing a contract is waived in the specific scenario where a franchisor and a franchisee renew their agreement under identical terms and conditions as the original contract.

Translation is not mandated by law but is practically necessary. For the purposes of archival filing, any documents submitted in a foreign language must be accompanied by a Chinese translation. The Regulation requires that a franchisor shall provide authentic, accurate and complete information to its franchisees.

In China, franchisors are subject to a mandatory administrative filing system rather than a pre-approval registration. The legal basis for this requirement is found in Article 8 of the Regulation, which mandates that franchisors must submit a filing with the competent authorities after signing their first franchise agreement. Detailed procedural rules are further outlined in the Filing Measures. Franchisors are legally permitted to offer, market and sign franchise contracts before filing, provided they meet substantive legal criteria such as the “two-store, one-year rule” under Article 7 of the Regulations. The actual filing must be completed within 15 days following the execution of the initial franchise agreement and is submitted to the provincial-level Department of Market Regulation.

Within 15 days of signing, for the first time, a franchise contract with a franchisee within China, a franchisor shall apply for archival filing to the archival filing authority.

A franchisor applying for archival filing shall submit the following materials to the archival filing authority:

• basic information regarding the commercial franchise;
• information regarding the distribution of stores of all franchisees within China;
• the market plan of the franchisor;
• a business licence for enterprises with legal person status, or other certificate regarding legal status;
• registration certificates regarding the trade mark rights, patent rights, and other business resources relating to the franchised business operations;
• certification documents as prescribed in paragraph 2, Article 7 of the Regulation;
• where a franchisor has engaged in franchised business operations before 1 May 2007, the provisions of the preceding paragraph shall not apply when it submits the materials regarding the application for archival filing of commercial franchises;
• the first commercial franchise contract concluded between the franchisor and the franchisee within China;
• a sample franchise contract;
• the table of contents of the brochure for franchised operations (the number of pages of each chapter and section, and the total number of pages of the brochure shall be indicated and, if such a brochure is available on the internal network of the franchise system, the estimated number of pages for printing shall also be indicated);
• approval documents of the relevant administrative organ for the engagement of a product or service subject to examination and approval under any law or regulation of the state;
• the franchisor’s commitment bearing the signature of the legal representative; and
• any other materials that the archival filing authority requires to be submitted.

Failure to complete the archival filing obligation within the prescribed time limit can result in administrative penalties. The competent commercial authority may order the franchisor to file within a specified period and can impose a fine of between CNY10,000 and CNY50,000. If the franchisor fails to comply after being ordered to do so, a higher fine of between CNY50,000 and CNY100,000 may be imposed, accompanied by a public announcement.

The Regulation stipulates several conditions a franchisor must meet, including:

• the franchisor must be an enterprise (not any other unit or individual);
• it must own business resources such as registered trade marks, enterprise logos, patents, or proprietary technology;
• it must possess a mature business model and have the capability to provide continuous business guidance, technical support and training services to the franchisee; and
• it must have operated at least two directly owned outlets for more than one year (the “Two Stores, One Year” rule).

It is generally recognised that a franchise agreement is void if the franchisor lacks enterprise status. However, a franchisor’s failure to meet certain other administrative requirements – such as not fulfilling the “Two Stores, One Year” requirement or failing to complete the mandatory archival filing with the competent authorities – does not automatically invalidate the franchise contract itself. These are considered separate administrative violations subject to penalties but do not inherently affect the civil validity of the agreement.

Chinese regulations do not impose any specific past-profitability requirements on the franchisor or its outlets.

The franchise term stipulated in the franchise contract shall not be less than three years, unless it is otherwise agreed upon by the franchisee.

The previous requirement is not applicable when the franchiser and the franchisee renew the franchise contract.

The regulations do not grant a franchisee an automatic statutory right to renew the franchise agreement upon its expiration. The franchise agreement should explicitly state the terms and conditions for renewal. The law is silent on the matter of goodwill compensation payable upon non-renewal.

Franchisor’s Termination Rights

A franchisor may terminate the agreement for cause, such as a material breach of contract by the franchisee. The specific grounds for termination should be clearly defined in the agreement.

Franchisee’s Termination Rights

Article 12 of the Regulation mandates that the franchise agreement must include a clause allowing the franchisee to unilaterally terminate the contract within a certain period after signing it (a so-called “cooling-off period”).

If the franchise agreement explicitly defines the duration of the cooling-off period, courts will generally uphold this agreed-upon period. But even if the contract is silent on this period, franchisees are generally granted a “reasonable period” to exercise this right by courts. The key factor is that the franchisee has not begun to “utilise the franchisor’s business resources”.

If the franchisee invoked the “cooling-off” termination and has not used the franchisor’s resources (no training received, no store opened, no operational materials used, etc), courts typically recognise the right to terminate and may order a full or partial refund (after deducting costs incurred by the franchisor, such as initial training or materials provided). But if the franchisee has already operated a store or used the franchisor’s resources (eg, trade marks, training or operational systems), courts generally do not support termination under the cooling-off period.

Article 23 of the Regulations requires franchisors to provide true, accurate, and complete information during the disclosure process before signing the contract.

If a franchiser hides any relevant information or provides false information, the franchisee may rescind the franchise contract.

Exclusive Territories

Competition authorities assess whether the exclusivity restrictions in a franchise agreement are necessary to protect the franchise system’s integrity. If the territory is excessively broad or prevents other franchisees from entering without justification, it may be viewed as anti-competitive. The key is to balance legitimate business interests against the risk of market foreclosure.

Non-Compete Obligations

If the scope, duration, or geographic reach of such obligations in a franchise agreement are overly broad, they may be deemed to restrict competition excessively. Courts and regulators often require that such clauses be proportionate to the legitimate business interests they protect. For instance, non-competes should not apply to ordinary employees without access to confidential information.

Purchase Ties

Tying may be justified for quality control or brand consistency but can be abusive if the franchisor holds a dominant market position and the tie restricts competition without objective justification. Authorities examine whether less restrictive alternatives are available to achieve the same quality standards.

Exclusive territories can be permitted in franchise agreements, and franchisors can include clauses to prevent franchisees from operating competing businesses during the term and for a period after termination. However, their enforceability and specific requirements are subject to legal scrutiny and must balance the interests of both parties.

A franchisor can require a franchisee to purchase products, services, or equipment from the franchisor or its designated suppliers. This is considered a core element of maintaining brand consistency and quality control within the franchise system. However, such requirements should not be used to impose unreasonable prices or conditions that could be deemed anti-competitive.

A franchisor is generally permitted to reserve certain sales channels, such as the internet or specific corporate accounts, for itself. This should be clearly stipulated in the franchise agreement.

While China does not have a direct equivalent to the EU’s Vertical Agreement Block Exemption Regulation (VBER), Article 15 of its Anti-Monopoly Law provides for exemptions for monopoly agreements, including vertical ones, under certain circumstances. These exemptions are available if the agreement is for certain specified purposes, such as:

• improving technologies or researching and developing new products;
• upgrading product quality, reducing costs or improving efficiency;
• enhancing the competitiveness of small and medium-sized businesses;
• serving the public interest, such as by conserving energy or protecting the environment;
• mitigating a severe decrease in sales volume during economic recessions; and
• protecting justifiable interests in foreign trade and economic co-operation.

Article 15 Exemption Criteria

The franchisor and franchisee would need to demonstrate that their agreement meets one or more of the criteria listed in Article 15, as set out below.

Franchisor investment

The franchisor invests significantly in developing a proprietary business model, operational systems, specialised software, branding or marketing strategies. The vertical restraints in the franchise agreement (eg, requirements to use specific equipment, follow operational manuals, adhere to quality standards and participate in marketing pools) are indispensable to:

• improving technology/quality – ie, ensuring the franchisee delivers a consistent, high-quality product and customer experience, thereby upgrading the overall product offering in the market; and/or
• reducing costs/improving efficiency – ie, achieving economies of scale in national advertising, centralised purchasing of supplies (which can lower costs for franchisees), and efficient training where such standardisation can reduce the operational and managerial costs for individual, often small, franchisees.

Preventing free riding

The restraints are necessary to prevent “free riding.” Without territorial protections or quality controls, one franchisee could benefit from the brand investment and marketing of others while undercutting them on cost by lowering quality, ultimately degrading the entire brand and reducing consumer choice.

The Safe Harbour Presumption

China’s State Administration for Market Regulation (SAMR) has issued the “Antitrust Guidelines on the Platform Economy” and accompanying notices that, while focused on platforms, reflect a broader modernised approach. Importantly, they introduced a “safe harbour” presumption for vertical agreements.

While not an absolute exemption, this guidance suggests that if the parties to a vertical agreement (like a franchise) have a market share below 15%, there is a presumption that the agreement does not have the effect of eliminating or restricting competition. This provides a significant degree of comfort for the vast majority of franchise systems that do not possess significant market power.

Parties to a franchise agreement are generally permitted to choose a foreign law to govern their contract. This principle of party autonomy is recognised under Chinese law, particularly Article 41 of the Law on the Application of Law for Foreign-Related Civil Relations of the People’s Republic of China. If the franchise agreement involves the licensing of intellectual property, Article 49 of the same law specifically addresses IP transfer and licensing, allowing parties to choose the applicable law.

The choice of law is not absolute, however, and is subject to limitations.

• Any choice of foreign law cannot derogate from the mandatory provisions of Chinese law that apply to franchise activities conducted within China. This means that regardless of the chosen governing law, Chinese regulations concerning franchise operations – such as disclosure requirements, registration with the MOFCOM, operational rules, and protections for franchisees – will still apply if the franchise is operating in China.
• Rights in rem concerning IP (eg, ownership and validity) are generally governed by the law of the place where protection is sought.

Article 2 of the Regulation stipulates that “the engagement in commercial franchise within the territory of the People’s Republic of China shall be governed by this Regulation”. Thus, mandatory franchise regulations (eg, disclosure rules, registration requirements, the “two stores, one year” requirement for filing, contract duration, and termination requirements) cannot be contractually avoided by selecting foreign law.

The validity, protection, and infringement of intellectual property rights (trade marks, patents, etc) in China are exclusively governed by Chinese law.

Article 11 of the Regulation stipulates that the franchise contract must be in writing and include the following mandatory clauses:

• basic information about the franchisor and franchisee;
• the content and term of the franchise;
• the type, amount and payment method of franchise fees;
• specific details of operational guidance, technical support, and business training;
• provisions on product or service quality control;
• clauses on the use of the franchise brand and related advertising;
• provisions for the renewal, termination and transfer of the franchise;
• liability for breach of contract; and
• dispute resolution mechanisms.

The law does not provide a specific “blacklist” of prohibited contractual provisions. However, any clause that violates the mandatory provisions of the franchise regulations or other fundamental principles of Chinese law would be deemed invalid and unenforceable.

China is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Therefore, arbitration awards made in other member states are generally recognisable and enforceable in Chinese courts.

Enforcing foreign court judgments in China is generally considered challenging. Enforcement primarily relies on bilateral treaties or the principle of reciprocity.

There is no specific restriction imposed on the payment of franchise fees.

Withholding taxes apply to royalty payments (including franchise fees) and technical service fees made by Chinese franchisees to overseas franchisors. The franchisee is legally obligated to withhold the tax at source before remitting payment abroad.

The normal withholding earned income tax rate for non-resident enterprises is 10% for income from a Chinese source, including dividends, interest, royalties and capital gains.

China maintains a system of foreign exchange controls, administered by the State Administration of Foreign Exchange (SAFE). For routine payments like franchise fees and royalties, businesses generally do not need to obtain prior approval from SAFE or the central bank (People’s Bank of China) for each transaction. However, the franchisee’s commercial bank will process the outward remittance. The bank is responsible for conducting a routine review of the underlying commercial documents to ensure authenticity and compliance.

A franchise agreement must be in writing.

For archival filing, a foreign franchisor must have its identity certification documents (eg, certificate of incorporation) notarised by a notary public in its home country and then authenticated by the Chinese embassy or consulate in that country.

China is a member of the Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents. If the foreign franchisor is from another member country, the often simpler apostille process replaces the traditional consular authentication one.

Article 14 of the Electronic Signature Law of the People’s Republic of China specifies that a “reliable electronic signature” has the same legal effect as a handwritten signature or seal. An electronic signature is deemed reliable if it simultaneously meets the following conditions:

• when the electronic signature creation data is used for electronic signature, it belongs exclusively to the electronic signatory;
• at the time of signing, the electronic signature creation data is controlled solely by the electronic signatory;
• any alteration to the electronic signature after signing can be detected; and
• any alteration to the content and form of a data message after signing can be detected.

Stamp duty is governed primarily by the Stamp Tax Law of the People’s Republic of China. Several types of documents common in a business franchising relationship may be subject to stamp duties. The types of documents include documents for intellectual property licensing, sales contracts, leasing contracts, technical contracts and business account books.