China Enforces Good Contracts
Contrary to popular belief, China’s legal system offers robust mechanisms for contract enforcement, outperforming not only common perceptions, but also the judicial systems of the United States, Canada, and the United Kingdom in efficiency. At least this is what the World Bank said in its last (2020) report ranking countries on the efficiency by which they enforce contracts.
Yes, if you are seeking to protect your cutting-edge semiconductors based on a contract enforceable in China, your odds are not good. But if, on the other hand, you are seeking to enforce a run of the mill manufacturing contract or service contract or whatever and your contract was drafted with China in mind, you ought to be just fine.
This post aims to dispel myths, provide clarity, and offer actionable insights into creating and enforcing contracts in China, ensuring that businesses can thrive in this dynamic market.
The Five Keys to a China Contract That Works
The following are the five keys to a China contract that works:
1. China Dispute Resolution
Your contract with Chinese companies should provide for disputes to be resolved in China, either in a Chinese court or before a China-based arbitral body. Your choice of venue will depend on the nature of your contract. China does not enforce most foreign court judgments. See e.g. China Enforces United States Judgment: This Changes Pretty Much Nothing. China’s courts do (technically anyway) enforce most foreign country arbitrations, but not always, and getting a Chinese court to do this is rarely quick or easy.
2. Chinese as the Official Language
Designating Chinese as the official language of your contracts is not just a legal formality; it’s a strategic move ensuring clarity, legal precision, and enforceability in China’s judicial system. See Dual Language China Contracts: Don’t Get Fooled! If you are going to have your contract be in Chinese, your lawyer must fully understand the Chinese in your contract and be fully capable of translating that contract into English for you.
3. China Law as the Applicable Law
Your contract with Chinese companies should call for application of Chinese law. If you are going to have your contract in Chinese and your disputes before a Chinese trier of fact, this only makes sense.
4. Explicit Contract Damages
You usually should have a provision calling for contract damages. This provision can act as a heavy hammer against your Chinese counterparts. See China Contract Damages Done Right.
5. The Correct Chinese Company Name
Make certain the name (in Chinese) of your Chinese counterpart is 100% accurate and corresponds with its official company name. And while you are at it, it is good to have your Chinese counterpart stamp/seal the contract as well. See China Company Chops: The Basics.
Go forth and prosper.
