Gnomon and the circular paths of the Chinese “2+1” Rule

It is said by Chinese sources that as far back as 400 B.C. Chinese mathematicians had developed solution to many of mathematics most complicated problems by using physical rods called the “galley method.” One recent regulatory problem that needs to be solved by the Chinese government is the recently enacted “2 plus 1” disclosure rule under article 7 of the new Regulations of Commercial franchising of P.R. China (“Regulations”).

Under these Regulations, a franchisor is obligated to both register to franchise and provide disclosures to prospective franchises. Article 7 further requires that a franchisor must have two company-owned units in operations for more than one year before becoming eligible to franchise in China (commonly referred to as the “2 + 1” requirement).

The Regulations are painfully silent as to whether a foreign franchisor can satisfy the “2 + 1” requirement with units in operations in its home country. The ambiguous language of the Regulations could benefit the foreign franchisors unless the Chinese government establishes a clearly defined “within China” regulatory requirement.

Hopefully, this regulation can be properly clarified and it’s not back to the Chinese bamboo counting rods of the early Han Dynasty.