Purchase contract with a Chinese supplier: clauses and value

A purchase contract, or purchase agreement, sets in writing what the buyer and the factory have agreed: product, price, quantities, deadlines, payment. Its value does not come from the paper. It comes from two conditions: the entity that signs exists and can pay its debts, and the clauses can be invoked in China. A contract signed with a shell company, or whose bank account belongs to an individual, protects nothing. Supplier verification therefore comes before signing, not after.

In practice, the contract is most useful before any dispute. It serves as a common reference during production, when contacts change or memories diverge. It supports a negotiation: a factory that knows payment milestones depend on an inspection behaves differently than a factory paid in advance. It also prepares a recourse, even if that recourse remains rare and costly. We return to this below.

Start with the parties. The company name must appear in Chinese and English, with the 18-digit registration number that identifies each company in China, the Unified Social Credit Code. Check it in the national public enterprise register. The name on the contract must match the name of the bank account that will receive your payments. A discrepancy between the two is one of the classic fraud signals.

Then move on to the product. A contract that says "wooden furniture" protects nothing. Attach a specification sheet: materials, dimensions, finishes, packaging, marking, target standards. Designate a reference sample, dated and signed by both parties, as the quality basis.

The price is written with its currency, its Incoterm and the chosen place: FOB Shenzhen and FOB Shanghai do not designate the same final cost. Specify the validity period of the quote, quantities and delivery schedule. Payment deserves special attention: a down payment at order, then a balance paid after inspection and before loading. This sequencing is worth more than any penalty clause, because it gives the buyer real leverage at the moment the goods leave.

Write the account number in the contract. If the factory ever asks for a wire transfer to a personal account or an account in another company's name, refuse and have the original account confirmed in writing. International wire transfers and, for larger volumes, documentary credit remain the two usual channels. Add capped and realistic late payment penalties: a penalty that no factory can pay deters nobody.

Insert a pre-shipment inspection clause: the right to have the goods checked by a third party, according to defined AQL levels, and to reject a non-conforming lot. Without this clause, a rejection relies solely on the factory's goodwill. Describe the consequences of a failure: rework of defects, replacement, price reduction or refund, with specificity on who pays for re-inspection and re-loading.

On the compliance side, the requirement comes from your market, not the factory. A Chinese factory does not know the European rules applicable to your product. Attach the expected standards and markings, and make their respect a condition of acceptance. Regulatory compliance is documented, not presumed.

A contract in English only leaves factory staff facing a text they do not always master. The bilingual Chinese-English remains common practice, with a clause specifying which version prevails in case of discrepancy. We systematically re-read the Chinese version: that is what decision-makers read. The official company stamp, affixed on the last page, serves as a signature in China.

The parties to an international sale may designate the applicable law; this is also the case in a contract with a Chinese party, within the limits set by Chinese law. For disputes, arbitration is common: CIETAC, the arbitration commission based in Beijing, handles foreign trade disputes. A foreign arbitral award is in principle enforceable in China, a signatory to the 1958 New York Convention; an award rendered in Hong Kong falls under a specific arrangement with mainland China. Before a Chinese court, a foreign company may also act directly.

A contract does not verify a supplier: it assumes verification has taken place. It does not monitor production either: without in-process or pre-shipment inspection, you learn of defects upon arrival. And it does not get your money back quickly: enforcing an award or judgment against a Chinese company requires local proceedings, whose duration and cost often exceed the stakes of a modest first order. None of these limitations is a reason to do without it: they define its role.

Protection is built in layers. A verified supplier, staggered payments, pre-shipment inspection, a bilingual document: each layer reduces the risk that the next one will have to be used. The contract is the final layer, the one that makes explicit what the other layers still leave to chance.

At Sorva, a brokerage and sourcing firm, the contract never comes first: our sinophone team in Guangzhou first verifies the company, its registration and bank account, then we negotiate the terms. We review the Chinese version of the contract, not just the English one, and we include the reference sample, payment milestones and pre-shipment inspection. Our sinophone team speaks with the factory in its language; we do not speak Chinese ourselves, we verify what is written.

In most cases, you pay no fees: you open a file, we negotiate the goods for you and we take a commission on their ex-works value.