The latest catalog on foreign investment in China, the most important policy document in the field of China foreign investments (entered into force on 31 January 2012), removed franchising from the category of investments subject to restrictions. Franchising is now a “permitted” investment.
This new legislation is certainly a further sign of openness to foreign investors in the sector, including multinational companies, as well as small and medium-sized enterprises. Continue reading
In China, franchising involves a company (franchisor) granting the use of certain intellectual property rights and business resources to another company (franchisee), by contract. The franchisee conducts its business activities using the intellectual property rights and business resources licensed by the franchisor. The franchisee pays a fee to the franchisor as consideration for the use of the intellectual property rights and, in general, the use of a business model for selling goods or providing services.
The new China Foreign Investment Catalogue (外商投资产业指导目录) was published on 29 December 2011. The new Catalogue will come into force on 30 January 2012 and will replace the 2007 Catalogue. The new Catalogue (like the previous ones) was issued by the National Development and Reform Commission (NDRC) and the Ministry of Commerce. The Catalogue classifies foreign investments in China into three categories: encouraged, restricted and prohibited investments. Investments not included in any of these three categories are to be considered permitted.
Encouraged investments are favored by, among other things, a fast track approval process. On the other hand, restricted investments are subject to additional limitations or requirements.