Should Your China Manufacturing Contract Be in English or Chinese?
Many lawyers default to English without considering the downsides. In this post, I will explain why manufacturing contracts usually fare better with Chinese as the official language. I will highlight the advantages of a Chinese language agreement and also discuss how my law firm’s experience with over a thousand China manufacturing contracts equips us to offer fixed fee pricing for China manufacturing contracts.
Our Pricing on China Manufacturing Contracts Reflects Our Experience
I recently had a conversation with a potential client. This company has a new product it wants made in China. Like many companies starting out in China, this one is in the process of shopping for its China lawyers and my firm was one of four law firms suggested to it by its regular corporate counsel.
We were the fourth law firm with which she had spoken. She shared her experiences with the other three firms, and it highlighted the unique approach we take in billing and handling these contracts
I discussed with her the importance of having their Manufacturing Contract in Chinese and outlined the process, emphasizing the value of also providing an English translation.
Why Your China Manufacturing Contract Should Be in Chinese
Because international contracts are so often between parties from different countries, they commonly are written in two or more languages. Nearly all of the contracts we draft for our clients doing business in China are in English and Chinese (though maybe ten percent of the time, we translate them into German, Spanish, Korean, or French as well). Though bilingual contracts are beneficial, designating an official language becomes pivotal when disputes arise, and if not handled properly, pose big problems.
When we do a contract in both English and Chinese, we call for the contract to specify ONE official language to control if there is a dispute. We do not advise drafting contracts that are silent on the official language, nor do we advise drafting contracts that call for both English and Chinese to apply. Having two official languages pretty much doubles the chances for ambiguity and pretty much doubles the attorney time (and fees) that will be incurred in fighting over the meaning of the two contracts.
If you are going to be in a Chinese court, you want your contract to be in Chinese. The reason for this is simple. If your contract is in English, the Chinese courts will use their own translator to translate it. Translations can be easily manipulated, and it is virtually always better to have your contract translated by your own law firm in advance, so you know exactly what it says before you sign it than to have it translated into Chinese by an unknown translator only after you have sued on it.
Perhaps most importantly, we have become convinced that most problems between foreign companies and their Chinese manufacturers stem from a lack of clarity regarding the manufacturing terms. Giving the Chinese manufacturer a carefully crafted Chinese language agreement goes a long way towards preventing future problems.
The question for us comes down to whether English or Chinese should be the official language of the contract and the answer to that question requires we first decide the best place for our client to have its disputes resolved But determining the language also involves deciding on the ideal location for conflict resolution. If we go for arbitration in English (and if the Chinese manufacturer actually agrees to this, which is rare), then we almost certainly will want English as the official language. But if we decide the Chinese courts will be the best place to resolve conflicts, we want Chinese to be the official language.
China Courts Are Usually the Best Venue for Manufacturing Disputes
In determining where best to resolve conflicts on a manufacturing contract, we begin our analysis by first trying to determine the most likely and potentially most damaging disputes, and then analyze where best to handle each sort of dispute. Disputes between foreign companies and Chinese manufacturers frequently center on the following:
1. The Chinese manufacturer provides bad product
The best way to deal with disputes involving a Chinese company providing bad product is usually to seek to work it out with the Chinese manufacturer. If that proves impossible AND there is enough at stake to warrant suing, litigation or arbitration in China will likely be the best course of action. Not to minimize the importance of these cases, but they usually involve only one shipment, and they usually involve a finite amount of money.
Litigation outside China against a China based manufacturer usually does not make sense. Because most Chinese companies do not have any assets outside China and because China does not enforce foreign judgments, getting a judgment outside China against the Chinese company likely will have little value. There is therefore no point in having a contract that calls for jurisdiction in a court outside China. For more on the difficulty/impossibility of enforcing foreign judgments in China, check out China Enforces United States Judgment: This Changes Pretty Much Nothing, but note that China does have judgment enforcement agreements with certain countries.
2. The Chinese company manufactures your product in violation of the Manufacturing Agreement
You have a great product and you have taken it to China for manufacturing there. You are currently selling in just a few countries, but your plans call for you to eventually sell into China, India, and maybe even Africa someday. All of a sudden, you learn that your Chinese manufacturer is not making just the 100,000 units you ordered but is instead making 500,000 units and shipping the extra 400,000 to India, Africa, and the rest of Asia, where it is selling them for half what you charge.
If your agreement calls for arbitration in Hong Kong or New York, or even Beijing . . . good luck. What you need, and what you need fast in these situations, is a court order requiring the Chinese manufacturer to stop making your product, and the fastest way to get this is through a Chinese court.
Pretty much the only way you are going to get that badly needed court order at all quickly is from a Chinese court. If you did everything right with your contract, it would l have liquidated damages provisions that will also allow you to secure a judgment relatively quickly from a Chinese court for damages and will — in the meantime — give the Chinese court a strong basis for freezing the assets of the Chinese manufacturer before you secure your judgment. See China Contract Damages Done Right. The threat of this seizure is often enough to convince the Chinese manufacturer to cease and desist from manufacturing and selling your product, without need for the court order.
If your manufacturing contract calls for arbitration and you sue in a Chinese court to get an injunction to stop your manufacturer from improperly manufacturing and selling your product, you likely will not succeed. The Chinese manufacturer will show the court your arbitration clause and request it decline the case in favor of resolving the dispute in arbitration. Once you are in arbitration, you pretty much will not be able to get an injunction or an asset freeze.
It is possible to write your manufacturing contract to call for arbitration with a Chinese court “carve out” for injunctive relief or an asset freeze, but many Chinese courts do not to enforce these sorts of provisions.
3. The Chinese manufacturer refuses to return your molds after you terminate the relationship
This often happens when the foreign company terminates its relationship with its Chinese supplier. Not surprisingly, the key here is to have a contract in Chinese that makes clear that the mold belongs to you and that there will be hell to pay (in legal terms) if the Chinese manufacturer fails to quickly return those to you.
But if your manufacturer does not return your molds, damages are usually not what is needed; you need the molds immediately because without them you cannot manufacture your products. Again, the best positioned foreign company is the one with a contract in Chinese who can go to a Chinese court for an injunction mandating its manufacturer return the molds, or at least a large enough asset freeze to convince the Chinese manufacturer to back down. See Protecting Your Molds and Tooling When Manufacturing Overseas.
In addition to guiding clients on language choice, another area where my law firm differs is in our pricing model for China manufacturing contracts.
The Advantage of Fixed Fee Pricing for China Manufacturing Agreements
Another distinctive feature of my law firm is our approach to pricing. Our fixed fee pricing model ensures both predictability and cost-effectiveness, and it often results in significant savings compared to the hourly rates charged by other law firms. This is particularly true for complex contracts where the time commitment can be unpredictable. By charging a fixed fee, we absorb unforeseen complexities, ensuring our clients do not encounter unexpected costs.
The other law firms the company approached would work only on an hourly rate, citing uncertainties in the time commitment for such contracts. Based on our extensive experience in drafting these contracts for various leading manufacturing countries, we have developed a streamlined process that allows for efficiency and precision, and we know the time commitment usually required for these contracts. We also believe in standing with our clients when navigating uncertainties.
Choosing between English and Chinese for a contract’s governing language goes beyond linguistics—it’s a matter of strategy. To maximize clarity and ensure enforceability, your China manufacturing contracts should be tailored to the nuances of the Chinese legal system. Its chosen language, jurisdiction, and dispute resolution mechanism will influence the outcomes of any potential conflicts. A China-centered contract that ensures clarity and compliance is the best approach.