Why Drafting China Contract on your Own is Not an Ideal Option

For every overseas company that is entering to China, faces a fundamental question- “Can I draft my China contract on my own?” We have put this question to the experienced China lawyers and furnishing their views through this blog.


View No- 1

For a foreign company with relatively low or no knowledge whatsoever about the legal scenario of China, drafting a China contract on their own could be a risky one. It has been noticed that there are two things foreign companies do, either they follow a contract previously drafted by one of their known companies who are in the similar trade as their, or they conduct an online research and come out with the structure of their own. Both the cases have their limitations. For the first scenario, every business is fundamentally different, with its individual needs and requirements. A China contract cannot be one size fits all. The contract that worked for other business may not prove fruitful for your company. For the second scenario, if it is so easy to prepare a China contract only by conducting online research, then the profession of China legal firms would not have flourished. So both the points are emphasizing one thing, seeking legal help for drafting your China contract is the best possible option for you.


View No- 2

It is a common practice for the foreign firms that in order to save money, they draft the China contract on their own, and send the contract to the legal firms for making the necessary improvements. For their kind information, we would like to say that the charges of improving a pre-written China contract is same as drafting a new one. If you think, just because most of the elements are already written in the contract, legal firms will charge less for making only improvements, then you are wrong, as they will charge you the same price. So why not drafting the entire contract by the professional China lawyers rather than paying for making only improvements.


View No- 3

It is a complete waste of time and energy for the Western companies trying to draft the contract on their own. Most of the time the self-written China contracts are contradictory, some of them make no sense and some are unenforceable without having any legal legitimacy.


All the foreign companies need to keep the above-mentioned views in their mind before trying to draft a China contract on their own.

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Important Elements to Keep in a China Contract

Most of the US and European business owners want in their contract that there should be provisions that effectively render their contracts unenforceable in China. According to the China lawyers, calling for U.S. court jurisdiction is a huge mistake as the Chinese courts will not enforce the judgment of the U.S. court. Contracts with Chinese companies are more formal than contracts in the United States.

The good faith principle is recognized and embodied in the PRC Contract Law. It is expressly provided in the PRC Contract Law that the parties shall follow the principles of fairness and good faith in entering into and performing the contracts. Here are the decisive factors that your China lawyer must infuse in the draft of the licensing agreement:

  • The contract made by your China lawyer must offer you a good business sense. Your lawyer should try to get the exact feel of your business and will be well aware of the facts what you want to achieve and avoid by licensing your technology to China.
  • Your lawyer should come out with a contract that can work in China. It must be drafted in a way that your Chinese counterpart should take it seriously and think twice before breaching it.
  • The contract should be drafted in a way that your would be Chinese licensee will definitely sign it. You need to keep it mind that, a completely one-sided contract that only favors you will not be signed by your Chinese licensee. So your lawyer has to draft a contract that is acceptable to both of you.

Changes concerning the subject matter, quality, quantity, time, price and place for the performance, liabilities for breach of contract and dispute resolution are considered material changes to the terms of the offer.

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