Key Clauses to Include in Your Chinese Sourcing Contracts

When sourcing products from Chinese suppliers, a well - drafted contract is your first line of defense against potential risks. Here are essential clauses international buyers should always include:

1. Product Specifications & Quality Control

• Detailed technical requirements:
  Specify exact measurements, materials, color codes (Pantone/PMS), packaging details, and functional standards. Example:
  “Stainless steel components must contain 18% chromium and 8% nickel per ASTM A240 specification.”

• Inspection protocols:

  • Third - party inspection requirements (SGS/Bureau Veritas)
  • AQL (Acceptable Quality Level) thresholds
  • Pre - shipment inspection timelines
  • Non - conformance penalties (e.g., $150/defective unit)

• Sample approval process:
  Require signed sample approval before mass production begins.

2. Payment Terms

Structure payments to align with production milestones:

1. 30% deposit after contract signing
2. 40% upon successful pre - shipment inspection
3. 30% after Bill of Lading presentation

Currency clause:
“All payments calculated in USD based on PBOC exchange rate on payment date.”

3. Delivery & Logistics

• Incoterms 2020:
  Clearly define responsibilities using standard terms like FOB Shanghai or DDP Memphis.

• Late delivery penalties:
  “1.5% of order value per week delay, capped at 10% total order value.”

• Force majeure:
  Include specific examples relevant to China:
  “Including but not limited to typhoons, COVID - 19 lockdowns, and government - mandated production restrictions.”

4. Intellectual Property Protection

• Non - disclosure agreements:
  “Supplier agrees not to disclose product designs to third parties for 5 years post - contract.”

• Tooling ownership:
  “All molds and production tools become buyer’s property upon full payment.”

• Counterfeit prevention:
  “Unauthorized replication of products will result in RMB 500,000 per infringement plus legal costs.”

5. Compliance Requirements

• Product certifications:
  “Goods must comply with EU REACH Regulation (EC) No 1907/2006 and FCC Part 15 standards.”

• Labor standards:
  “Supplier warrants compliance with China Labor Contract Law and prohibits child labor per ILO Convention 138.”

6. Dispute Resolution

• Arbitration clause:
  “All disputes resolved through CIETAC (China International Economic and Trade Arbitration Commission) under UNCITRAL rules.”

• Governing law:
  “This agreement shall be interpreted under China Contract Law (2020 Revision).“

7. Termination Conditions

• Breach thresholds:
  “Buyer may terminate contract if >8% of products fail inspection in two consecutive batches.”

• Wind - down procedures:
  “Supplier must return all materials and intellectual property within 15 days of termination.”

8. Warranties & Liabilities

• Product lifespan guarantees:
  “LED components warranted for 50,000 hours of continuous operation.”

• Consequential damages:
  “Supplier liable for downstream losses from defective products, including recalled inventory costs.”

Practical Tips for Enforcement

1. Bilingual contracts: Use Chinese/English parallel text with clause stating Chinese version prevails
2. Notarization: Legalize documents through China Council for Promotion of International Trade
3. Bank guarantees: Require standby LC for orders over $50,000
4. Social compliance audits: Reserve right for unannounced factory inspections

Remember: Chinese courts generally uphold well - drafted contracts. A 2023 CIETAC report shows 78% of foreign companies successfully enforced contracts when containing these key elements. Always consult with China - licensed legal professionals before finalizing agreements.