Meta Description:Foreign businesses often underestimate the importance of China‑specific contract terms. This FAQ highlights key issues when drafting and negotiating contracts with Chinese companies.
1. Do we really need a written contract under Chinese law?
Yes. While oral agreements can be enforceable in some cases, a clear written contract is crucial in China:
- Courts and arbitrators rely heavily on written terms.
- Without a proper contract, it is harder to prove obligations, quality standards, and remedies.
A bilingual or well‑translated contract avoids misunderstandings and supports enforcement.
2. Which law and dispute resolution clause should we choose?
There is no single right answer, but you should consider:
- Whether you may need to enforce a judgment or award in China.
- The nature of the transaction (long‑term, complex, regulated).
Common options:
- Chinese law + Chinese courts – often practical when performance and assets are mainly in China.
- Chinese or foreign law + international arbitration – can offer neutrality and easier cross‑border enforcement of awards.
You should avoid vague or conflicting clauses, which may make the clause unenforceable.
3. What business terms are often overlooked?
Foreign parties sometimes neglect:
- Quality and inspection standards, including testing methods and acceptance procedures
- Delivery terms (Incoterms), risk transfer, and logistics responsibilities
- Clear payment milestones, currency, and late‑payment interest
- Detailed specifications for IP use, branding, and confidentiality
Spending more time on these “commercial” details up front reduces disputes later.
4. How should we handle Chinese‑language versions of the contract?
Best practice:
- Decide which language prevails in case of inconsistency (often Chinese for use in local authorities and courts).
- Ensure the other language version is an accurate working translation, reviewed by bilingual counsel.
- Avoid allowing counterparties to unilaterally “adjust” the Chinese text after signing.
Language inconsistencies can be exploited in disputes; careful drafting prevents this.
5. What security or guarantees can we seek?
Depending on your leverage, consider:
- Advance payments, deposits, or letters of credit
- Personal guarantees from key shareholders (where appropriate)
- Security over equipment, receivables, or IP
- Step‑in rights or control mechanisms for JVs and distributors
Chinese law has specific formalities for many security interests, so you should check enforceability before relying on them.
6. How can we reduce the risk of non‑payment or non‑performance?
Practical measures include:
- Background checks and credit assessment on the Chinese counterparty
- Staged deliveries and payments tied to clear milestones
- Contractual rights to suspend performance when overdue amounts exceed certain thresholds
- Early involvement of counsel when performance problems arise, to frame notices and evidence correctly
Contract drafting and ongoing risk management should work together.
7. How can Chinese corporate & commercial counsel assist?
We help foreign businesses by:
- Drafting and negotiating China‑specific contracts
- Aligning contract terms with regulatory requirements and local practice
- Structuring dispute resolution and enforcement clauses
- Coordinating with in‑house and foreign counsel on cross‑border deals
If you are entering into significant contracts with Chinese companies, our corporate and commercial team can review and tailor documents to protect your interests.