Due to the slowdown of the economy, rising costs and difficulties in finding staff, the licensing industry is expected to have fewer directly operated stores and more franchised ones.

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The report found that 37 out of the top 120 franchised chains reduced the number of directly operated stores.

Second- and third-tier cities will be the major battlegrounds for franchised stores, according to the report.

Despite the weakened momentum in opening new stores, Pei Liang, secretary-general of the franchise association, said coffeeshops, education services and Chinese fast food are attracting more investors this year.

Pei commented during a franchise exhibition held in Beijing earlier this month.

South Korea-based chains have increased their presence in China in recent years as a result of the impact of Korean pop culture, including TV dramas and movies.

Caffe Bene, a South Korean coffee chain brand, plans to open more than 5,000 cafes by 2015. "Most of the investors are now in their early 20s, and they're attached to Korean brands and products," said Pei.