The Five Keys to A China Contract That Works

I hate when someone claims China does not enforce contracts — that just happened. I hate this because it is mostly just not true. Yes, if you are seeking to protect your cutting-edge semiconductors based on a a contract enforceable in China, your odds are not good. But if, on the other hand, you are seeking to enforce a run of the mill manufacturing contract or service contract or whatever, if your contract was drafted with China in mind, you ought to be just fine. Believe it or not, but the World Bank ranks China as better for getting a contract enforced than the United States.

What are the keys to a China contract that works? The following:

1. You generally want your contract with Chinese companies to provide for disputes to be resolved in China, either in a Chinese court or before a China-based arbitral body. Your choice of venue will depend on the nature of your contract. China does not enforce most foreign court judgments. See e.g. China Enforces United States Judgment: This Changes Pretty Much Nothing. China’s courts do (technically anyway) enforce most foreign country arbitrations, but it does not always do this and getting a Chinese court to do this is rarely quick or easy.
2. You generally want your contract with Chinese companies to use Chinese as its official language. See Dual Language China Contracts: Don’t Get Fooled! Of course, if you are going to do this, you need to be darn sure that your lawyer both fully understands the Chinese in your contract and is fully capable of translating that contract into English for you.
3. You generally want your contract with Chinese companies to call for application of Chinese law. If you are going to have your contract in Chinese and your disputes before a Chinese trier of fact, this only makes sense.
4. You usually should have a provision calling for contract damages. This provision can act as a heavy hammer against your Chineses counterpart. See On the Importance of Contract Damages in China Contracts.
5. Make certain the name (in Chinese) of your Chinese counterpart is 100% accurate and completely corresponds with its official company name. And while you are at it, it is good to have your Chinese counterpart stamp/seal the contract as well. See China Company Chops: The Basics.

That’s it. Go forth and prosper.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.