China's steps to regulate franchising watched closely: the word "franchise" is almost inextricably linked with the word "opportunity." But if you listen to many conversations among franchise leaders these days, there's a third word that is increasingly dropped into discussions about the future of the franchising sector--China.

As the economy of the People's Republic of China expands and with it, the opportunities for new business development, business-format franchising will no doubt play a major role. While those who have visited the country in recent years can confirm major shifts towards a market-oriented economy, we should be equally quick to caution others who express sentiments that parallel those of the Gold Rush Days in California.

Yes, China is big, really big, and a market of such size always excites entrepreneurs who sometimes have difficulty assessing the true nature and size of a potential market for their goods and services. That is why IFA is leading a trade mission to the region September 19-30 that includes Hong Kong among its scheduled stops; Singapore and Bangkok are also on the list. In addition, we recently renewed our sponsorship agreement with Global Sources, a trade show promoter that has for many years organized successful franchise expositions every November in Beijing, Guangzhou and Shanghai.

And yes, China has a major share of the world's population, is the third largest country in the world, covers one-fifteenth of the globe's land mass and has a "written" history that dates back some 4,000 years.

There is no denying the growing excitement about China as a new and potentially lucrative market for the expansion of many franchise systems. But before the excitement gets out of hand, we need to fully assess the regulatory market there. China's recent admission to the World Trade Organization signals improved commitment to the protection of intellectual property rights and open markets, among other things. These commitments notwithstanding, there are still significant concerns about whether the spirit of those commitments will be met in fact.

It might be instructive to take a closer look at franchise specific regulations released at the beginning of this year in China. These regulations are based largely on the PRC Ministry of Commerce's "Provisional Measures for the Supervision of Foreign Invested Enterprises Engaging in Commercial Franchising Business," a set of guidelines created to establish a legal structure for franchising and commerce in general in China.

While the diligence and careful thought that went into the these regulations should be commended, the global franchising community should be aware that some of the language contained in this document appears at odds with the goal of open markets and reduced barriers to trade.

Certainly the PRC should be given credit for its deep interest in franchising as a method to rapidly and efficiently spawn business enterprises. However, the measures reveal that there is an unfamiliarity with franchising that could challenge the confidence of the franchising community in developing plans for expanding there.

As the measures were being developed, the International Franchise Association submitted formal comments to the Ministry of Commerce--the only trade organization to do so--expressing the franchising community's concerns. While the measures appear to strike an appropriate pre-sale disclosure balance between the desire to protect franchise investors with reasonable regulations and the legitimate concerns of franchisors that such regulations will be overly-restrictive, there are concerns regarding the nature and extent of the disclosures required. Some of these are ambiguous and could be corrected simply by tightening the language, but others, such as one which deals with "operations results" is troubling since it could force a franchise system into providing information that could mislead prospective franchisees.

There are also obligations imposed on franchise systems that require disclosures to existing franchisees, something that could be a good business practice, but unusual in the context of what is largely a set of pre-sale disclosure requirements. What's more, an item determining responsibility for the quality of commodities provided by designated suppliers could be troubling to foreign-invested enterprises that would have little or no control over local suppliers.

The International Franchise Association has formally expressed its concerns over these and other issues related to the expansion of franchising and we will continue to improve our dialogue with public policy makers there in an effort to resolve these concerns. We are eager to aid China in its embrace of the greatest business format ever devised and remain committed to working with our counterparts to help the People's Republic of China avoid creating overly-burdensome regulations that would have a chilling effect on the growth and expansion of franchised businesses in that country.