How to negotiate your contract in China

How do you approach negotiating a trade agreement with China?

Based on my experience, let’s examine the issues to be addressed and the main questions to ask, taking the negotiation of a trade distribution agreement as a practical example.

Let’s start with the first issue that is important to clarify.

Nice Business Card — But Who Is This Guy?

Business cards, websites, printed or digital brochures, presentations, and any other materials shared in English have no official value in China.

The company name of the counterparty and the first and last names of people representing it or acting on its behalf, written in English, are only fictitious names.

To be certain of the company’s data and the identity of the persons, it is necessary to ask for the information in Chinese, with particular reference to the company’s business license (equivalent to the Companies House or Chamber of Commerce’s excerpt), from which the name, corporate purpose, registered and paid-up share capital, and the name of the legal representative can be inferred.

The data can then be verified by accessing the portal of the State Administration of Industry and Commerce (SAIC) of the province where the Chinese party is based.

This first verification is essential to ensure that you do not waste time or even run into scams (here’s an in-depth article on Legalmondo’s blog).

If You Don’t Own Your Trademark, Someone Else Will — and Charge You for It

Trademark First, Trade Later. China operates on a first-to-file system for trademarks, which means that the first person or company to register a trademark — not necessarily the original creator or most famous user — gains the legal rights to it. This creates a serious risk: if you haven’t registered your trademark in China, someone else might do it before you, and then either use it freely or demand a hefty ransom to give it back. Even high-profile figures like Elon Musk and Michael Jordan have been entangled in costly and protracted disputes with Chinese trademark squatters. In many cases, getting the mark back is highly complicated, and sometimes legally impossible.

To avoid this, register your trademarks early, even before entering the Chinese market. File directly with the China Trademark Office (CTMO) and don’t stop at the English version — consider registering a Chinese character version as well, since that is how your brand will often be known locally.

Once that base is covered, clearly state in your contract that your Chinese partner is not allowed to file a registration of any of your trademarks in China, in Latin or Chinese characters, and that he will use trademarks and IP rights in strict conformance to the contract and your instructions.

For a deeper dive into how to effectively protect your IP rights in China, check out our detailed article on the Legalmondo blog.

Contracts can wait. First, get on the same page

When negotiating with a Chinese partner, it’s often a mistake to begin the conversation by exchanging contract drafts. Instead, focus first on the substance — the relationship’s commercial and technical terms. Using a clear checklist of key discussion points (such as products, pricing, delivery terms, technical standards, after-sales support, exclusivity, duration, payment terms, etc.) helps ensure that both sides are aligned on what really matters. Take detailed notes and keep minutes of the discussions, especially where and when consensus is reached, and make sure those minutes are circulated and expressly agreed upon. Once substantial agreement has been achieved on the main terms, this memo can then be handed over to your lawyer, who will translate the business understanding into clear and coherent contractual language. This approach saves tons of time, as it helps avoid unnecessary back-and-forth on legal language before the core deal is in place.

Think Your NDA Covers You in China? Think Again

Yes, they are—and often underestimated. A well-drafted Non-Disclosure Agreement (NDA) is essential when the parties plan to exchange confidential information, such as technological know-how, commercial strategies, supplier data, or client lists. Especially in the early phases of negotiation or cooperation, before a main contract is signed, an NDA helps protect intellectual and business assets.

However, as with all contracts in China, a generic NDA template copied from other jurisdictions will likely be of limited use. To be truly effective, the NDA must be adapted to the specifics of the Chinese legal environment. This includes ensuring that it is enforceable in China: the NDA should include the proper dispute resolution mechanism (see below on why you should consider applying Chinese law and litigating in China), and it must specify clear, valid, and proportionate penalties for breach. In Chinese practice, stating specific contractual penalties (liquidated damages) is often more effective than vague references to compensation, as courts and arbitrators in China tend to enforce these more reliably if they are reasonable.

While a good NDA is useful, it often falls short in China’s manufacturing and sourcing landscape. This is where the NNN Agreement — standing for Non-Disclosure, Non-Use, and Non-Circumvention — becomes critical. Unlike standard NDAs that primarily focus on confidentiality, an NNN Agreement is designed to address the unique risks of doing business in China. It prevents the recipient from not only disclosing confidential information but also from using it for their benefit or bypassing the disclosing party to work directly with suppliers, clients, or partners. Which, in China, is a very real risk.

This broader scope is vital when dealing with Chinese manufacturers or intermediaries, who may otherwise be tempted to replicate products or contact customers directly or through third parties. As seen with the NDA, also the NNN Agreement must be drafted in Chinese, governed by Chinese law, and enforceable in Chinese courts -otherwise, it may offer little real protection.

Memorandum of Understanding: Where Good Intentions Become Bad Contracts

A Memorandum of Understanding (MoU) is a helpful tool at the early stage of a commercial relationship. It serves as a roadmap for future negotiations, where the parties outline the main principles and intentions that will guide the drafting of the final agreements. When used correctly, an MoU can significantly facilitate negotiations by ensuring that both sides commit to negotiating the agreement in good faith and share a common understanding of key points such as pricing models, territorial scope, exclusivity, milestones, budget, or performance expectations.

However, an MoU must be used for what it is: a preparatory document, not a binding contract. Care must be taken to avoid ambiguity and unintended commitments. The text should clearly specify that the parties remain free to conclude — or not — the final agreements and which clauses are non-binding — such as the commercial framework or indicative timelines — and which provisions are binding, typically confidentiality, exclusivity during the negotiations (if agreed), governing law, and dispute resolution. A poorly drafted MoU, which includes overly precise and complete terms, can be misinterpreted as a final agreement, creating unnecessary legal risk. So yes, MoUs are valuable — but only when used correctly. If you’d like to know more, go deeper by reading this article.

Bad Drafts, Big Headaches, Poor results

Draft agreements used in China are often copied and pasted from incomplete, superficial, poorly organised templates written in bad English, which often do not match the Chinese version of the contract.

Correcting and integrating these drafts is complicated and more time-consuming than starting from a good template, with suboptimal results.

It would be better to propose a consistently constructed text and ask the other party to propose any changes and additions to this draft.

Your Western Contract Template Won’t Work Here

Even if an English-language contract is perfectly valid, there are many reasons why using contract templates built for other countries in the Chinese market is inadvisable.

The first is the fact that Anglo-Saxon-based agreements, such as those for the U.S., refer to a common law system (which is based on judicial decisions and case law precedents) that is very different from that of civil law countries (such as China and Italy), which derives from the Roman legal tradition, based on a codified set of written laws.

It follows that the layout of an agreement on the Anglo-Saxon model is different, much more detailed, and wordy than that of a typical agreement based on a civil law system. Since contract negotiations in China are generally lengthy and complex, working on redundant and complicated text at the outset does not help.

If we stick to the example of a distribution contract, it should be added that it is advisable to apply Chinese law to provide for arbitration based in China (e.g., at CIETAC) or in Hong Kong or Singapore (third countries, where, however, the costs of the procedure increase significantly) as the mode of dispute resolution. So, the contract should be built on a model that conforms to the law that will apply to the relationship.

Home Court Advantage Won’t Help You in China. In fact, quite the opposite

This is a typical point of disagreement in the negotiation of an international contract: the parties aim to have the law of their own country apply, and to stipulate that any disputes be adjudicated by their domestic courts.

In our case, insisting on the application of Italian (or any other foreign) law and state court is not a good idea: it should be considered, in fact, that a distribution agreement is carried out, for the vast majority, in the country where the distributor operates and where the products are sold (in our case, in mainland China).

In disputes, the parties’ (particularly the manufacturer’s) interest is to obtain a quick decision by the adjudicating body, especially if situations requiring immediate protection (such as unfair conduct or counterfeiting of trademarks and patents by the distributor) are ongoing.

None of this is possible if one goes to an Italian judge (with lengthy litigation time and the need then for a complex and costly process to recognise and enforce the decision in China); on the contrary,  an arbitration in China, applying Chinese law, allows one to reach a decision quickly (on average 6-9 months) and, if necessary, also to obtain urgent measures to stop any unfair conduct.

Chinese Law Isn’t a Black Box (If You Know What You’re Doing)

The lawyer assisting you should know it.

Therefore, it is not a leap in the dark, and one should not fear surprises.

In addition, it should be remembered that an agreement is primarily based on the covenants that the parties have written in the contract; therefore, if the contract has been well drafted, the rules to be applied are clear.

Finally, if we consider distribution agreements, keep in mind that they are a framework contract, within which a series of separate product sales contracts are concluded. If both countries are contracting parties to the 1980 Vienna Convention on the International Sale of Goods (CISG), then the uniform, clear, and balanced rules of the convention apply automatically, just don’t opt out!

One Contract, Two Languages

No, the contract is also valid in English only.  However, it is undoubtedly advisable to draft a Chinese version with facing text.

This is for several reasons: first, it prevents the Chinese party from having to arrange for a translation of the text during negotiations for its own internal use (top managers often do not speak English), thus slowing down the various steps of negotiations.

Also, to ensure that the Chinese side fully understands the agreement’s content and to avert misunderstandings (real or instrumental) about the interpretation of certain covenants.

Finally, it should be borne in mind that if the contract were later to be used before a court or administrative authority in China, the only language admitted would be Chinese; for this reason, it is better to have already a text agreed and signed by the parties in Chinese as well, rather than having to prepare a unilateral translation later.

Sign. And chop

Does the contract need to bear the company’s official stamp? Yes, and this point is absolutely crucial. In China, a company’s official «chop» (the red-ink stamp) is equivalent to a signature and is conclusive proof that the person signing the contract has the authority to represent the company. A signature alone, even from someone with an important-sounding title, may not be sufficient if it is not accompanied by the official chop. Without it, the contract might later be challenged or even considered void. Before signing, always verify that the stamp used matches the one registered with the company’s business license or official corporate records, and ensure that the stamp is applied on every page or at least on the signature page, in line with local practice.

Don’t Let Your Contract Collect Dust

Things change fast, especially in China. New products are added, market conditions evolve, people leave the company, new competitors emerge on the horizon, and so on. Companies constantly adapt to the new conditions, and so must the contract.

Any change in the relationship should be formalized correctly. To avoid misunderstandings and disputes, it’s advisable to include an integration clause in the contract, specifying that any amendments or additions will only be valid if agreed in writing, signed by the parties’ authorized representatives, and annexed as an addendum to the original agreement.

It’s not enough to include this clause — you must follow it consistently. If things change, agreements reached verbally, through Wechat messages, and through email exchanges may make things complicated if they are not formalised adequately according to the procedure set out in the original contract.