How does the contract protect the rights of foreigners in China

By Sharline Shaw

China has been playing an increasing role on the international stage since its new policies opened it up to the overseas business. Thousands of overseas business entrepreneurs have been able to tap the massive Chinese market and do business with Chinese people. These economic partnerships need a sound legal system to protect each party’s rights. As a result, China has passed relevant laws to regulate the market. Despite this, there are still many business disputes between foreigners and Chinese people. They argue forcefully for their economic rights and specifically over the contract they signed. If this is the case for you, knowing how to prevent or address this problem can be a challenge. This article sets out to prevent this headache by explaining more about China’s legal process and the possible business disputes between you and your Chinese counterpart.

3 Terms you have to notice when drafting contracts

1. Market entry methods

If you want to deal with businesses in China, there are different methods of market entry.

If you have a stable source of products, you can export them to sell in China. You can have indirect exporting, franchising, licensing, or selling online on third-party platforms. What if you only have money to invest and still want to be involved in China’s fast economic development? Fund investment is legally possible. You can invest directly in China. You can set up your representative office in China, make a wholly foreign-owned enterprise, or joint venture to realize your Chinese business dream. You have to know the relevant laws of China and follow the regulations when you draft your contracts. With a legal contract, you will be in a better position if you have business disputes in the future. If possible employ a lawyer and make sure you understand the relevant and up-to-date legislative terms.

2. Intellectual property (IPR) regulations

China is a member of the WTO and therefore party to all the major intellectual property conventions it has set out. IPR includes trademark, patent, and copyright. Firstly, you need to refer to relevant laws and regulations when you are drafting the contract items even though copycats are very popular in China. Knowing the regulations helps you to streamline your business and protect your IPR. It is especially important when you are sourcing from China or selling your items in China.

3. Items of your own interests

When you draft business or commercial contracts, remember to pay special attention to items specifying your own obligations and benefits. Make sure your contract is with the right party and includes all detailed materials, technical specifications, pricing provisions, quality requirements, and product warranties. Put everything relevant to your own business in black and white to protect your rights. Be clear and keep your specifications in front of mind; this makes a good beginning and basis for your business.

Resolutions to your contract disputes

Sometimes things don’t go as planned, and you are forced to face business disputes. How should you address it?

1. Firstly, try negotiating.

You should negotiate with your Chinese counterpart with the support of your lawyer. Negotiation is the most efficient method of solving a business dispute and as such most contracts stipulate that negotiation should be exhausted before other methods of dispute resolution are used. Both parties are allowed to negotiate to get an agreed solution over the breach of contract or get financial compensation. In this way, both parties preserve their working relationship with little cost.

2. Next, you can choose mediation to address contract disputes.

If negotiation does not work for your dispute, you can resort to mediation. It is commonly used as part of but before arbitration or litigation. Relevant parties should take part in mediation with mediators selected by the arbitral panel or during an in-court session. There are various types of mediation, mediation by People’s Mediation Committees, specialized mediation such as labor mediation, informal and formal commercial mediation, judicial mediation, and mediation during the arbitration.

3. Arbitration is also an alternative to address disputes.

The Arbitration Law of the People’s Republic of China governs arbitration in China. When it occurs, you have to choose an arbitral body based in China or offshore in another country. Generally, it depends which rules govern arbitration and the seat of arbitration. If you choose to have the arbitration in China, the China International Economic and Trade Arbitration Commission (CIETAC) will be the arbitral body conducting your case. China has acceded to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards, stipulating that arbitral awards rendered in other signatory countries are recognized and enforceable in China. Likewise, the enforcement of arbitral awards is straightforward and transparent for both signed parties.

4. Last but not least, you can resort to litigation.

Overseas individuals and corporations are allowed to bring the case to court as if they are Chinese residents. Litigation is the final option available to resolve your business dispute. This option will be quite costly and time-consuming due to the limited power of related courts. As a result, most parties are likely to settle their disputes before the litigation stage as this is more efficient, effective and satisfactory.

It should now be clear the options available to resolve business disputes between overseas individuals and companies. Follow this link if you want to read more about doing business in China. We hope the article will be helpful for your business. Remember, to be able to defend your legal rights and protect your interests you need to be informed about the current law in China. To choose which option you will use to resolve your dispute you need to consider your situation and consult with your lawyer.

Sharline Shaw, the founder of a leelineSourcing.com, is an expert on Chinese export trade. With 10 years’ experience in the field of sourcing in China, she is familiar with all relevant regulations and laws about China exports.