Contracts for Wine Distribution in China. 10 takeaways

I have often dealt with commercial distribution agreements between Italian and Chinese companies, sometimes following negotiations in the wine sector for various types of agreements: sales, distribution, franchising, establishment of joint ventures, and sales through online stores.

I am sharing some key considerations for approaching this complex but opportunity-rich market.

📌 Here are my 10 takeaways

Step Zero. Protect your IP

it is essential to protect your intellectual property before entering China. This includes trademarks (including their Chinese transliteration), labels, web domains, and social media accounts. Neglecting this aspect can have disastrous consequences, exposing you to the widespread phenomenon of trademark squatting (even famous names such as Michael Jordan, Elon Musk, and Donald Trump have fallen victim to this).

For more information, you can read this article about Intellectual property protection in China

1 – Know your enemy

trust is good, but mistrust is better. Before entering into commercial agreements, it is essential to check the credentials of potential partners through the databases of the State Administration for Industry and Commerce. When it comes to wine, it is necessary to check whether the prospective distributor has a license to import and distribute wine.

2 – No copy-paste

 Contracts must be tailor-made, adapting them to local specificities. In particular, it is crucial to clearly regulate promotional activities: budget, commercial actions, communication methods, and management of the producer’s trademarks. It is also best to write the contract in Chinese to ensure that there are no misunderstandings and in case it needs to be used before a judge or local administrative body, as Chinese is the only official language. (N.B.: if you think of entrusting the task to ChatGPT, this is not a good idea).

For an in-depth article, check out The commercial distribution contract in China

3 – Decide immediately how and where to litigate

It may seem counterintuitive, but it is best to avoid providing for Italian (or French, or German) jurisdiction and applicable law, which is an ineffective solution, especially in cases where urgent action is needed to stop unfair competition or counterfeiting. Consider applying Chinese law and provide for an arbitration clause at CIETAC. An effective dispute management strategy is a key element of the agreement and must be negotiated carefully. (P.S.: This applies not only to China but to all international agreements. For more information, see this article).

4 – China is big

And it is the sum of many very different internal markets. Exclusivity should be granted for good reasons, but only if the distributor has a well-developed commercial network and can achieve specific shared objectives. If granted, it should be limited to the province where the distributor is based and subject to the achievement of agreed sales volumes. Having a single distributor for the whole of China is like entrusting an Italian distributor with promoting a product throughout Europe. Or appoint a NYC-based company to promote and sell your wines in all 50 US States.

5 – China is far away

Delegating everything to the local distributor and taking no interest in what is happening on the Chinese market is never a good idea. Firstly, because you have no idea how, where, and with what results the wines are being sold. Secondly, because you cannot verify compliance with agreements, for example on non-competition or the use of trademarks. It is therefore important to schedule meetings to share commercial policies and be able to verify what is happening, including through audits and visits to warehouses and the sales network.

6 – China is expensive

Competition in the Chinese domestic market is fierce. This is also true in terms of price, as some countries that are direct competitors of Italy (Australia, Chile, New Zealand) have free trade agreements and can therefore enter the market on more favorable terms than Italian wine, which is subject to a total tax burden of around 43% after payment of duties, excise taxes, and VAT. It is necessary to position oneself in the right market segment (medium-high), and to do so, it is necessary to plan the right commercial actions together with the distributor. Selling Ex-Works and hoping that the distributor will take care of everything is not an excellent strategy for being competitive.

7 – China is dangerous

Scams are always around the corner. In the wine world in particular, for example, spontaneous expressions of interest are frequent, arriving via the company website, social media accounts, or directly via email. They sound like this: we have discovered your wines, we think they are fantastic, we want to place an order immediately. If it sounds too good and easy, it is certainly a scam. There is an easy way to check: if the next step is a request for payment of a few thousand euros, justified by the need to register the wines on the CIFER (China Imported Food Enterprise Registration) portal, or to register your trademark to prevent others from doing so, or to authenticate the signature on the sales contract… these are attempts at fraud, and the elusive order will never arrive after payment has been received. How can you check whether the person you are dealing with is a reputable company or a fraudster? 👉🏼Go back to point 1 (here is an in-depth article).

8 – E-commerce? Yes, but with method (and money)

Online wine sales continue to grow, but entering large platforms is complex, competition is fierce, and running an online store requires meticulous planning and highly efficient system implementation. The online market in China is all pay-for-play. Nothing is achieved with no money or minimal effort. If you want to sell online, you need to build an omnichannel system integrated with traditional distribution, and to do this, it is essential to involve a local partner with well-defined investments and responsibilities.

9 – China is not a market for everyone

You need to protect your brands, study the market thoroughly, know your competition (both foreign and local), find the right market channel, select a distributor motivated to invest time and money in promoting your product, and be willing to support them with the right investments. If you want to build a serious plan to enter the Chinese market, you must have a medium- to long-term perspective. There are no shortcuts (actually, there are many, but they almost always lead to wasted time and money). If you are unwilling to invest in entering the Chinese market through the front door, it is unlikely that anyone else will do it for you.

10 – Don’t do it yourself

If you have read up to point 9 and are still keen to enter the Chinese market, consider doing so professionally, involving consultants who can support your company throughout the market research, scouting, negotiation, and contract drafting processes. This is also part of the investment needed to build and develop a solid and resilient business model. This advice applies to all foreign markets, and even more so to China.