Hallmarks to Secure a Good Bilingual Contract in China
There's really no excuse for not having a bilingual contract in China and these are the hallmarks of a good contract. Preparing a quality bilingual contract is likely to increase confidence in the process as you are protecting your rights and needs. It is most certainly a way of ensuring both parties understand and agree to its content.
A short situation below is an example of what will happen when you do not know what should do before making a contract.
“If you've got the contract with the right party you would not believe how many buyers, especially if you're a new buyer plate think you're doing business with the factory you pay the money to their trading company in Hong Kong. And you've got a contract with an agent or a broker no one really set out to cheat each other. But then if you need to drag somebody into court what will inevitably happen is you think that you're taking the manufacturer to court and the judge brings them in and the manufacturer says, “Yeah we've got a purchase order from this Australian buyer but we never received any funds” and you say “Wait I sent the funds to this account”. Well that's a different company that's in Hong Kong and then you drag the Hong Kong company into the court and they say, “Yeah we received these funds from Australia and we don't have a matching purchase order. We didn't know where they came from and we've already spent the money”.
- Make sure that the name on the contract in local language matches the bank account name, ideally matches the name on the factory door or the agency that you're using whatever. So if those three are the same then your contract is going to have muscle.
- Readable contract
“Some other hallmarks of a good contract, it is readable, you don't let the local lawyer in Sydney tell you about the 50-page watertight contract. That contract might not even get read, so break it down and think of it as a memo of understanding. Get it four pages or less and when I talk about being bilingual, I don't have it like two pages English and two pages Chinese what I would do is a paragraph or a couple sentences in English translated into Chinese and then a signature for initial it or chop it. Also, I don't just hand the document to the supplier via email and say get back to me let's do it let's do a Skype call or let's do a video call or let's meet in person at the trade show and go through each of these items one by one. I like to do it in front of their peers because if a vendor knowingly breaks the terms of contract he's going to lose a lot of face to his peers. So I like to make a signing ceremony something special like I'm buying lunch or drinks and say let's bring a couple of your key employees and let's do the signing cotton ceremony together. Then we go over each the points one by one as a group so if the general manager breaks the terms of the contract that were explained in such easy terms for everybody to understand his employees are going to know that he's a cheater, so actually that lost the face and sometimes has more influence than the fear of lawyers.”
In the next article of the series, let’s talk about why always choose the arbitration in China when dealing with Chinese companies.
Video tutorial on China Supplier Contracts & Negotiation is found here.
ABL Blog: Sr. Editor and Primary Content Creator: Michael J. Bellamy
Originally from Upstate New York, Mike moved to Asia in 1993 and is a China business advisor to both Fortune 500 companies and small businesses. Recognized as an expert on doing business in China, he has been interviewed by WSJ, CNBC, FT & Bloomberg.
A featured presenter on China issues at seminars, trade shows and corporate events across the globe.
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