FTC Rule versus Art.5: Are Chinese Earnings Claims Mandatory?

If a foreign franchisor already has franchises inside China, according to Section 8 of Article 5 of the most recently enacted China Franchise Law, that franchisor must make "earnings claims" in his disclosure document. This could create an interpretive dilemma if the foreign franchisor does not have any outlets open in China yet. Can you use your US (FTC Rule/UFOC ) earnings claims based on US domestic data and operations to comply with China's earnings claims requirement?

My guess is that would not work in China for a number of reasons. First, Section 8 of Article 5 states that data on Chinese franchisees is required to satisfy the earnings claim requirement. Second, Subsection 2 of Section 8 tends to discount the acceptability for operational data collected outside Mainland China. The Chinese regulations focus on geographical relevance vis a vis earnings claims collected from actual operational results inside China. Third, Article 6 of the new law provides a ban on false earnings claims made in any franchise marketing and advertising of the franchisor in China, i.e. average earnings data for individual franchisees operational results inside China is not considered "propaganda" within the regulations.

Until such time as legislative history or Chinese case law is available discussing the actual disclosure requirements, franchisors will have to hope their filings match the message in the unopened earnings claim fortune cookie.