People’s Daily highlights ‘rapid recruitment’ franchise scams: how to spot the traps in China

On 28 September 2026, People.cn published a People’s Daily report titled ‘Beware of “Rapid Recruitment” Franchise Scams’, highlighting misleading claims, contract fraud and improper charges faced by franchisees. The report reveals that some franchise recruiters focus less on sustaining store operations than on quickly collecting franchise fees and subsequent payments for supplies — a warning for those considering a franchise in China.

The gap between recruitment promises and day-to-day trading

The report notes that some ‘rapid recruitment’ companies lack the qualifications required to operate a franchise network, yet recruit large numbers of franchisees in a short period. After collecting substantial fees, they provide poor-quality support or services that cannot sustain the business.

In one case, a man identified as Mr Huang investigated after suspecting he had fallen into a ‘franchise trap’. He found that the company neither met the ‘two stores, one year’ requirement under China’s Regulations on the Administration of Commercial Franchising nor had it registered its franchise operations with the relevant commerce authority. As explained in the report, ‘two stores, one year’ means having at least two directly operated stores, each trading for more than a year.

The company also profited by requiring franchisees to buy raw materials at heavily inflated prices. Prospective franchisees therefore need to look beyond the initial franchise fee and assess the ongoing cost of compulsory purchases once the business opens.

Check the stores — and understand the contractual relationship

The report explains that commercial franchising involves a business granting other operators the right to use its business resources under a contract. Franchisees operate under a standardised business model and pay fees in return.

It also notes that some recruiters split franchise agreements into several contracts, or present them as other types of agreement, to evade responsibility. Assessing a proposed arrangement therefore requires more than reading the contract’s title: brand licensing, operating requirements and fee structures also need scrutiny.

Precautions cited in the report include checking business licences, trademark registration certificates and authorisation documents; visiting several stores in person and distinguishing ‘showcase stores’ from ordinary franchise outlets; and closely examining purchasing obligations and refund conditions. Prospective franchisees should be wary of promises such as ‘low investment, high returns’ or ‘a quick return on your investment’.

Proposals for greater transparency are not new rules

On regulatory oversight, Wan Fang, deputy dean of the School of Law at Beijing Foreign Studies University, recommended stronger franchise disclosure requirements and a unified national public information platform. She proposed that it publish regularly updated information on franchise registrations, the number of directly operated stores, years in operation, historical store closure rates, administrative penalties and major litigation.

She also recommended tougher penalties for unlawful conduct, including repeat offences and repeated recruitment across different regions. These are expert recommendations quoted in the report, not new rules already in force.

Checks before signing offer more control than attempts to recover losses

The report notes that these cases often span multiple regions, involve dispersed networks of participants and feature concealed asset transfers. This makes investigations more difficult, while also complicating efforts to recover funds and secure redress for franchisees.

The practical lesson for anyone considering a franchise in China is to verify the contracting business, its authorisation and its actual stores before paying, and to understand ongoing purchasing obligations and exit terms. If anything appears suspicious, seek advice from or report it to the relevant authorities promptly. Recruitment promises are no substitute for due diligence.