Contracts in China

If you're partnering with a Chinese firm to take your IP to market, it can be useful to document your business understanding in a contract.

A contract is a legally binding document that's written for the country where it needs to be enforced. It should:

  • Comply with the country's legal requirements
  • Clearly state the details of the agreement
  • Set out the terms of the agreement
  • Account for how your IP will be owned and managed
  • Reduce the risk around a business transaction by clarifying each side’s obligations.

Can I modify an Australian contract for use in China?

A modified Australian contract may not be enforceable in China — it needs to be written specifically for China. You should engage a legal professional with experience in Chinese law to write your contract.

Prepare a contract

Before writing your contract, you should carry out due diligence on potential partners or service providers.

Before entering an agreement, you can carry out due diligence into a partner, business or organisation to help establish its validity.

Is your prospective business partner’s company registered?

In order to operate, every Chinese company must first register their business with local authorities and obtain a business license. This license shows evidence of registration and the business scope under which they can operate.

Does your prospective business partner hold the licenses or approvals necessary to perform their obligations under the contract?

Chinese companies aren't allowed to perform work outside their approved business scope. Working with businesses that don't have the appropriate business scopes or licenses increases the risk that they won't be able to fulfil their part of the contract.

Has your prospective business partner incurred any administrative penalties or restrictions or are they involved in any relevant litigation in China?

Don't rely on what your prospective business partner tells you - verify this information for yourself.

Make sure you obtain evidence of business licenses and business scope and details about penalties and litigation before signing your contract. If you wait until after you sign your contract, these issues may be difficult and expensive to resolve.

To perform due diligence, you'll need to access publicly available registers and resources that can be viewed online. However, much of this information is only in Chinese and can be difficult to access outside of China. Consider engaging a law firm with expertise and experience in China to carry this out on your behalf.

What to include in your contract

You'll need to make sure that your contract is suited to your needs. Here's some common considerations.

1. Identify the parties in detail
Your contract should clearly and unambiguously identify the Chinese party by:

  • Recording the exact Chinese name of the company
    • Even though English translations or transliterations are used informally in China, they won't help you identify the other party if you have to enforce your contract.
  • Listing their unified social credit identifier
    • This is a unique national business registration number allocated to a business when it's set up.
  • Including their registered address
  • Including their legal representative
  • Ensuring that signatories include the company seal to show they've been authorised to enter into the contract
    • Stamping the contract with the company's signature and official company seal (a stamp, sometimes referred to as a ‘chop’) is the safest way to execute a contract in China. If it's not clear that the signatory was acting on behalf of the Chinese company, then the entire contract will be void.

2. Use bilingual contracts
A bilingual contract can be a useful way to ensure you and the other party clearly understand the agreement you’re entering into. Your bilingual contract should specify which language will take precedence in the event of a dispute:

  • If you want the English language version of a bilingual contract to prevail, you'll need to specify this within the contract. If there's no clear direction, a court will usually rely on the Chinese language version
  • Consider having your contract reviewed by a bilingual lawyer to ensure both texts are identical.

3. Correctly execute the contract
Under China’s legal system, an incorrectly executed contract may not be considered enforceable. Make sure that the execution block at the end of the contract includes the following:

  • The company seal
  • The signature of the legal representative or authorised representative and their title. If the agreement is executed by a manager who's not the legal representative but claims to have the authority to sign the agreement, then the manager should have written authorisation from the legal representative (usually in the form of a Power of Attorney)
  • The official name of the entity in both Chinese and English
  • The date of the signature.

An enforceable contract should be written by a legal professional. We recommend you engage a professional with expertise and experience in Chinese law to advise you further.

Contracts commonly specify how and where disputes will be resolved. In China, the two most common dispute resolution methods are arbitration and litigation.

There are advantages and disadvantages to both. The best option depends on your specific circumstances. Your lawyer can advise you on this, and on choosing a location for any future litigation.

Arbitration centres

The Hong Kong International Arbitration Centre (HKIAC) is commonly used for arbitration between a foreign party and a Chinese party. HKIAC can handle Chinese and English language proceedings and has long-standing experience dealing with parties from Australia and China.

The Singapore International Arbitration Centre (SIAC) is another common option. However, its fees are higher than HKIAC's and it may be less accepted by Chinese parties.

There are also arbitration centres within mainland China, such as the China International Economic and Trade Arbitration Commission (CIETAC), and the Shanghai International Arbitration Center (SHIAC). These centres may be more acceptable to Chinese parties. Their decisions may also be easier to enforce through a Chinese court.

The governing law determines how your contract will be interpreted, including any disputes. Here's what to consider when choosing the governing law:

  • If the contract is between two companies registered in China, the governing law must be Chinese law
  • If you and your Chinese partner select a foreign law to govern your contract, Chinese courts can enforce the provisions of the foreign law, even if they differ to Chinese law
  • There are certain principles and provisions of Chinese law which a court can never override through the application of foreign law. In these cases, the Chinese law governs regardless of what you and your partner have agreed.

The most appropriate choice of law will depend on your contract and your dispute resolution method. Your lawyer can advise you further.

Before disclosing confidential information to another party, consider having a confidentiality agreement in place. This can be in the form of a:

  • Non-disclosure agreement
  • Non-disclosure clause included in a more comprehensive legal agreement.

Even with a well-drafted confidentiality agreement, you should manage confidential information carefully.

Seek professional advice

Preparing a contract isn't a simple task — if you aren't a legal professional, you shouldn't try to prepare one yourself.

You should consider engaging a legal professional with expertise in Chinese law to assist you. Your Australian legal counsel can work with Chinese lawyers, or you can work directly with a Chinese or international firm.

Engage an IP professional