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Tips from a Chinese lawyer about contract and PO

by Sophie Mao

Sometimes buyers sign a PO instead of a written contract. It is very risky. I strongly recommend that a bilingual contract must be signed before any PO is placed and in the contract make the responsibilities, rights and remedy for breach of contract very clear.

Actually, one of the hallmarks of a good contract is that it provides for very specific penalties or say, liquidated damages if the supplier fails to abide by its crucial terms, such as shipping date or quality specifications.

Make sure the penalty is large to make the supplier take them seriously but not so large as to scare them away.

As long as the penalty is reasonable, liquidated damages provisions are enforceable in Chinese court and it will save you lot of trouble as without pre-agreed terms for compensation, it is very hard to prove how much loss you have suffered.

The main value of putting a penalty in your contract is that it will motive the supplier to comply with the terms, accordingly actually you never have to enforce it.

Another thing is to make sure the contract is bilingual and the official language of the contract is Chinese. Why? There are many reasons for such an arrangement. First you have to list the Chinese name of the suppliers, which should be the same as what you see in their business license. Local AIC only register Chinese name, accordingly the English name, whatever they call themselves, is not an official name. Most important reason is because to litigation outside China, in US for example , against a Chinese supplier usually is meaningless. Most Chinese companies do not have any assets outside China and court in China does not enforce foreign judgments, this means that you actually get nothing even you prevail in an overseas court. If litigation is the only option to solve the dispute, a lawsuit should be filed in a Chinese court. The only language allowed to use in any Chinese court is Chinese, if you are not sure whether the translator can interpret the exact meaning you want to express, you had better find a lawyer to prepare a bilingual contract for you.


Sophie Mao is the founder & Directing Partner of Chibridge Law Firm, which offers advice on foreign direct investment and sourcing in China. She writes for overseas investors and buyers at Chibridge Law Blog, and lives full time in Guangzhou. You can contact her at This email address is being protected from spambots. You need JavaScript enabled to view it..

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