Hainan Carries Out Pilot Reform for Commercial Franchising

June 2, 2023 Posted by China Briefing Written by Giulia Interesse Reading Time: 5 minutes

Hainan has launched a province-wide Commercial Franchise Reform Pilot Work Plan, with the goal of simplifying the management of commercial franchise operations within the province as well as promoting inter-provincial franchise activities. We illustrate the actions proposed in the Plan and Hainan’s commercial franchise scene.

The Hainan Provincial Department of Commerce recently released a document titled Hainan Province Commercial Franchise Reform Pilot Work Plan (hereinafter referred to as the “Plan”) on their website. The Plan’s essential measures have been designed to enhance and simplify the management and oversight of commercial franchise operations within the province and promote inter-provincial commercial franchise activities.

Commercial franchising refers to a business arrangement where a franchisor grants the rights to another party, the franchisee, to operate a business using its established brand, trademarks, and business model.

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The Plan proposes a system of differentiated management for commercial franchise activities carried out by companies registered in Hainan Province, aiming to improve the process of recording inter-provincial franchise activities. To achieve this, Hainan will eliminate the requirement for filing records of commercial franchise activities conducted within Hainan and streamline the filing process for inter-provincial franchising.

We look at the Plan in detail, diving into the key actions that will shape Hainan’s franchise industry in the near future.

Oversight and disclosure requirements for commercial franchising in Hainan

The Plan includes five key actions with reference to franchising in Hainan, as illustrated below.

Canceling the filing requirements of commercial franchising within the province: From September 15, 2021, to August 1, 2023, the provincial government of Hainan will no longer mandate record filing for franchising within the province. Instead, businesses registered in the province will only need to disclose relevant information through the Ministry of Commerce’s (MOFCOM) Commercial Franchise Information Management Website in a simplified manner.
Streamlining the filing process for inter-provincial franchising: The guidelines for handling inter-provincial franchising will be revised and published on the Hainan Government Service Website . The Hainan Provincial Department of Commerce will continue to manage the filing process for inter-provincial franchising as authorized by the MOFCOM, but the filing process will be optimized and the processing time will be reduced from 10 working days to three working days.
Enhancing disclosure of franchisor information: Franchisors applying for provincial filing must disclose their business registration information, “two stores + one year” information (having at least two directly operated stores and operating for more than one year), operating resources, and information regarding provincial franchise stores. This information should be made available to the public on MOFCOM Commercial Franchise Information Management Website, at least 30 days prior to the conclusion of a commercial franchising contract.
Monitoring the reporting of commercial franchising contracts: The Hainan Provincial Department of Commerce will issue an annual notice for the reporting of commercial franchising contracts and make a public announcement on its official website. Local commerce authorities in each city and county will be responsible for supervising provincial and inter-provincial franchising enterprises within their jurisdiction, ensuring the reporting of information on the establishment, revocation, termination, and renewal of commercial franchising contracts for the previous year. The deadline for submission is March 31.
Conducting inspections and law enforcement for franchising operations: A comprehensive assessment of franchising operations throughout the province will be carried out using various means, such as public reports and random inspections.

Overview of business licensing and regulation for commercial franchise operations in Hainan

Serial number	Business matters	Requirements	Information or documents to be declared	Statutory processing time limit	Optimized processing time limit	Changes in the process
1	Information to be submitted for franchises within the Hainan province	Possessing registered trademarks, corporate logos, patents, proprietary technologies, and other operational resources. Having a mature business model and the capability to provide continuous operational guidance, technical support, and business training to the franchisees. Having at least two company-owned stores that have been in operation for more than one year.	Franchisor’s enterprise name and operational resources, such as registered trademarks, corporate logos, patents, proprietary technologies, used in the franchising business. The initial franchise agreement signed between the franchisor and the franchisee. Proof of compliance with the “two stores + one year” requirement. Franchisor’s legal business address, contact information, and the name of the legal representative. Distribution details of all franchisee’s stores within China.	10 days	Review process canceled	Enterprise submitting information Confirmation (Previously, a review process was required)
2	Cross-provincial franchise record-fling	Possessing Registered trademarks, corporate logos, patents, proprietary technologies, and other operational resources. Having a mature business model and the capability to provide continuous operational guidance, technical support, and business training to the franchisees. Having at least two company-owned stores that have been in operation for more than one year.	Business license or other proof of legal entity qualification. Certificates of trademark rights and patent registration. Proof of compliance with the “two stores+ one year” requirement. Franchise agreement. Sample franchise agreement. Table of contents of the franchise operations manual Approval documents for the franchised products. Letter of commitment from the franchisor Market plan proposal	10 days	3 days	Acceptance and initial review— Review and completion
3	Reporting changes in franchise agreements	All enterprises engaged in intra-provincial and inter-provincial franchising	Submit franchise agreements for the previous year regarding establishment, revocation, termination, and renewal	Every year before March 31		Enterprise submission –System verification

Commercial franchising in Hainan

Commercial franchising has gained significant traction in Hainan, attracting both domestic and international companies.

Indeed, there are several notable examples from various industries, including:

Fast food chains: International fast-food chains, such as McDonald’s, KFC, and Burger King, have successfully established their presence in Hainan through commercial franchising. These brands have partnered with local franchisees to bring their popular menus and standardized operating systems to the province, catering to the growing demand for quick-service dining options.
Hotel and resort brands: Hainan’s booming tourism industry has attracted renowned hotel and resort brands to set up their operations through franchising. Luxurious hotel chains like Hilton, Marriott, and InterContinental have partnered with local franchisees to offer high-quality accommodation and hospitality services, capitalizing on Hainan’s tropical landscapes and tourist attractions.
Retail and fashion brands: Many well-known retail and fashion brands have embraced commercial franchising in the island province. This includes clothing retailers like Zara, H&M, and Uniqlo as well as luxury brands like Gucci, Louis Vuitton, and Prada. These franchises bring a wide range of trendy clothing and luxury products to meet the diverse preferences of local residents and tourists.

Benefits for Hainan businesses

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All in all, the recent release of the Hainan Province Commercial Franchise Reform Pilot Work Plan brings numerous benefits and opportunities for businesses operating in the region. As illustrated, the Plan introduces a differentiated approach that specifically focuses on facilitating inter-provincial operations.

The streamlined processes are expected to reduce administrative burdens and enhance operational efficiency, allowing businesses to concentrate more on growth and development.

By creating a more business-friendly environment, Hainan aims to attract and support the expansion of commercial franchise enterprises. This aligns with the broader objectives set forth in national and provincial policies to promote trade liberalization and simplify procedures. With enhanced supervision and monitoring mechanisms in place, businesses can enjoy the benefits of a vibrant and thriving commercial franchise sector while ensuring compliance and protecting their interests.

In conclusion, the implementation of this Plan signifies Hainan’s commitment to fostering a conducive business ecosystem and unlocking new opportunities for businesses engaged in commercial franchise activities.

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