How to prepare an enforceable contract while sourcing in China?

When sourcing products in China, preparing an OEM (original equipment manufacturer) contract is crucial to protect yourself. However, the language, legal system, and culture are very different, making it difficult to create a contract that is enforceable in China. Here are five tips to help you prepare a contract that will hold up in court:

1.Hire an English-speaking Chinese lawyer to help you.

They have practical experience and knowledge of the latest changes in Chinese law. They can provide more useful suggestions than an overseas lawyer and ensure that the contract is enforceable in China.

2.Select China as the jurisdiction to ensure that any award will be executed.

Chinese courts are unlikely to enforce awards from other jurisdictions, so filing a lawsuit in China and obtaining a rule to freeze the defendant’s assets will ensure that any award in your favor can be executed.

3.Choose Chinese as the main language for the contract.

Only Chinese is the official language allowed to be used in Chinese courts. If you prepare a bilingual contract, specify that the Chinese version will prevail in the event of any contradictions. This way, you can ensure that the court will use the version prepared by your lawyer, not a translation provided by a court-appointed translator.

4.Choose Chinese law as the applicable law.

Although the parties are allowed to choose the applicable law, there are no detailed rules on how to use another country’s law in Chinese courts. In other words, it’s difficult to enforce foreign law in China.

5.Specify clear and reasonable liabilities for breach of the contract.

It’s crucial to ensure that the China factory understands the consequences of breaching the contract. Consult with your lawyer to set an appropriate liability. If the liability is too light, it won’t be a sufficient deterrent for the factory, but if it’s too heavy, the other party may claim that it’s invalid. The court will only enforce a reasonable liability.

6. Specify detailed quality standards.

Include a detailed product specification and quality control standards. This will help ensure that the product meets your requirements and minimize the risk of disputes arising from substandard goods.

7. Include IP protection clauses.

Specify the scope of confidentiality and intellectual property protection. This includes protecting your designs, trademarks, and other proprietary information, as well as prohibiting the factory from disclosing confidential information to third parties.

8. Don’t forget due diligence.

Last but not least, make every effort to verify the supplier’s true identity. Even if you have done everything else perfectly, failing to properly complete this final step can be a major disaster.Ask your supplier to provide a copy of their business license, and ask your lawyer to conduct a due diligence investigation on the potential supplier. If the supplier cannot provide a license, or if your lawyer deems it risky to do business with them, then terminate the deal immediately. We have explained this process in detail in our previous post: How to Avoid Being Scammed When source from China?