China Supplier Contracts: What to Include Before You Place an Order
Sourcing · Updated
A purchase order tells a supplier what you want and how much you will pay. It does not tell them what happens if the goods arrive defective, who owns the molds you paid for, or which country's courts govern a dispute. For small orders, a detailed PO may be sufficient. For anything over a few thousand dollars with a new supplier, a supplier agreement fills those gaps.
This guide covers the clauses that matter most for importers buying from China, why each one exists, and what the absence of each one costs you when something goes wrong.
Key takeaways
- --A purchase order covers price and quantity. A supplier contract covers what happens when something goes wrong.
- --The five highest-risk gaps in a PO-only relationship: defect rights, inspection access, mold ownership, IP protection, and dispute resolution.
- --Tooling paid for by the buyer is supplier property under Chinese law unless the contract says otherwise.
- --CIETAC arbitration under Chinese law is the practical dispute resolution choice for most importers -- it is enforceable, faster than litigation, and respected by Chinese companies.
- --Bilingual contracts (English and Chinese) with a controlling-language clause are required for enforceability in Chinese courts.
Product specification clause
The specification clause defines exactly what you are buying. It references the approved sample, lists all materials, dimensions, tolerances, and testing standards, and states that the delivered goods must conform to the approved sample on file as of a named date.
Without this clause: a supplier who delivers goods that differ from the sample has no contractual obligation to replace them. Their position is that the goods match the order, and the order did not specify otherwise.
What to attach: the approved sample record (photos, measurements, lab test results), material specifications, and any regulatory certifications required for your market (FCC, CPSC, CE, etc.).
Quality inspection rights
This clause grants you or your agent the right to inspect goods before they leave the factory, and states that the supplier must make the goods available for inspection at least 7 to 10 days before the scheduled shipment date.
It should also specify what happens if goods fail inspection: the supplier re-works or replaces the non-conforming goods at their expense, and shipment is delayed until re-inspection passes.
Without this clause: if you want a pre-shipment inspection, the supplier can decline. And if goods fail inspection, there is no contractual basis to require rework before shipment.
Defect and replacement terms
This clause defines what constitutes a defect, what defect rate is acceptable (common standard: AQL 2.5 for general merchandise, AQL 1.0 for electronics), and what the supplier is required to do if the delivered batch exceeds that rate.
Standard remedy options: replacement of defective units at supplier's cost, rework at supplier's cost, or a price reduction proportional to the defect rate. Define which applies and which is your right to choose.
Include a timeline: defects must be reported within 30 to 90 days of receipt, and the supplier must respond within 14 days of a defect claim.
Tooling and mold ownership
If you paid for custom molds, dies, tooling, or samples, the contract should state explicitly that these are your property, held in custody by the supplier, and must be returned to you or destroyed (with documentation) upon request.
Without this clause: Chinese law treats tooling paid for by a buyer as supplier property unless the contract says otherwise. A supplier who loses your business can continue using your molds for other customers or hold them as leverage.
The clause should also require the supplier to mark all tooling with your name and prohibit its use for any order other than yours.
Intellectual property and confidentiality
This clause covers your designs, formulas, artwork, and product specifications. It should state that all designs provided by you remain your property, that the supplier will not produce similar goods for other buyers using your designs, and that the supplier will not share your specifications with third parties.
For branded products: include a trademark license (limited to production under this contract) and a prohibition on unauthorized use of your brand outside that scope.
Enforceability in China is limited, but a signed contract with these terms creates grounds for an injunction through Chinese courts and is prerequisite to any legal action.
Payment terms and milestone structure
State the payment schedule explicitly: common structures are 30% deposit at order confirmation, 70% balance against copy of bill of lading before original documents are released; or 50/50 with a pre-shipment inspection gating the second payment.
Never pay 100% upfront to a new supplier. The deposit creates the supplier's commitment; the balance payment is your leverage before ownership of the goods transfers.
If using a letter of credit: reference the LC terms in the contract so the supplier understands the documentation requirements before production begins.
Governing law and dispute resolution
This clause determines where and how disputes are resolved. Options for China-supplier contracts: Chinese courts (enforceable in China but unfamiliar to you), Hong Kong arbitration (neutral, internationally enforceable), or CIETAC (China International Economic and Trade Arbitration Commission, respected and faster than litigation).
Avoid US courts as the governing forum: a US judgment against a Chinese supplier is practically unenforceable in China unless the supplier has US assets.
The practical recommendation for most importers: CIETAC arbitration under Chinese law, with arbitration seated in Beijing or Shanghai. It is enforceable, faster than litigation, and respected by Chinese companies.
Force majeure and delivery timeline
Define the production lead time and shipment date. State that the supplier must notify you within 5 business days if they cannot meet the delivery date and must provide a revised schedule.
Force majeure should be narrow: it should not excuse routine delays like raw material shortages or labor issues. Legitimate force majeure events are government-declared emergencies, natural disasters, and similar extraordinary events.
Include a late delivery penalty: a common structure is 0.5% of the order value per week of delay after the agreed ship date, up to a cap of 5% of the order value.
FAQ
Does a purchase order count as a contract with a Chinese supplier?
A purchase order is a contract, but it typically covers only price, quantity, product description, and delivery date. It rarely covers defect rights, inspection access, mold ownership, IP protection, or dispute resolution. For orders over a few thousand dollars with a new supplier, a separate supplier agreement adds the terms a PO leaves out.
Who should draft the supplier contract -- me or the supplier?
You should draft it, or have it drafted by an attorney who handles China trade. A contract drafted by the supplier will be written to protect the supplier. The importer pays to have the contract drafted once; they pay for the absence of one potentially every order.
What language should the contract be in?
Bilingual (English and Chinese) with a clause stating which language controls in the event of a conflict. Chinese courts require a Chinese-language version to be enforceable. If only one language is used, Chinese courts will use the Chinese version whether one was prepared or not.
What is AQL and why does it appear in supplier contracts?
AQL (Acceptable Quality Limit) is a statistical sampling standard that defines the maximum acceptable defect rate in a production batch. AQL 2.5 means that in a sample drawn from the batch, up to 2.5% defects per hundred are acceptable before the batch is rejected. It gives both parties an objective, internationally recognized standard for what constitutes an acceptable delivery.
If I paid for a mold, can a Chinese supplier legally use it for other customers?
Under Chinese law, tooling paid for by a buyer is treated as supplier property unless the contract states otherwise. Without a tooling ownership clause, a supplier can use your molds for other customers or refuse to return them when the relationship ends. A contract clause stating the molds are your property, held in custody by the supplier, is the mechanism that changes this.
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