A contract with a Chinese supplier: what to include
What to put in a contract with a Chinese factory: specification, price and Incoterms, payment schedule, AQL, defect liability, packaging, CIETAC arbitration. With a table, case and checklist.
A contract is not a formality but your main leverage if something goes wrong. Most disputes with factories are resolved (or never arise) thanks to terms fixed in advance — and executed correctly. Let us break down what a contract with a Chinese supplier must contain and how to execute it so it actually works.
Why do you need a contract with a Chinese supplier?
A contract fixes three things: what is produced, on what terms and what happens if obligations are breached. Without it, any dispute comes down to “we didn’t agree on that” — with no evidence. With a detailed contract you have grounds to demand replacement, rework or a refund, and the pairing with staged payment gives real leverage.
What must a Chinese manufacturing contract include?
| Section | Why it matters |
|---|---|
| Parties and company account | Payment only to the legal entity on the licence |
| Specification | Protection against mismatch and material swaps |
| Price + Incoterms | Clarity on what’s included and who pays logistics |
| Payment schedule | Balance tied to inspection — a quality lever |
| Production/shipment timelines | Liability for delay |
| Control and AQL | Right to inspection, acceptance criteria |
| Defect liability | Replacement/refund and at whose cost |
| Packaging and labelling | Integrity in transit |
| Dispute resolution | Applicable law, arbitration, language |
The specification is the most important section: each item with dimensions, materials, colour by code, quantity — best as an annex with photos and drawings. The more detailed, the less “the way we usually do it.”
Incoterms, payment and AQL — three levers
- Incoterms (EXW/FOB/CIF/DDP) determine what the price includes; more in the Incoterms article.
- A payment schedule with the balance tied to a successful inspection motivates the factory to deliver defect-free.
- AQL under ISO 2859 (critical 0, major 2.5, minor 4.0) fixes the acceptable defect level — removing disputes at acceptance. See quality control.
Chop, language and arbitration — the China specifics
- The official company chop. In China legal force comes from the company seal, not just a manager’s signature. Without the seal of the entity matching the licence, the contract is easily challenged.
- A bilingual text (Chinese + yours) with a prevailing version — the Chinese text governs first in Chinese arbitration.
- CIETAC arbitration — an award is easier to enforce in China than a foreign court judgment.
Mini-case: a contract that saved $20,000
A furniture batch arrived at inspection with front dimensions off-spec and sagging hardware. Because the contract fixed the specification, AQL 2.5 and the final payment tied to inspection, the factory was obliged to rework the defects at its own cost before shipment — and did. Without those clauses, the buyer would have accepted the defects or lost the deposit. The amount at stake was about $20,000.
Common mistakes
- A vague specification (“grey sofa”) instead of dimensions and codes.
- No Incoterms — a dispute over what’s in the price.
- Full prepayment with no link to inspection.
- No defect section — unclear who is liable.
- A contract with no official chop, or only in chat.
Contract checklist
- Supplier company’s details and account (per the licence)
- A detailed specification (dimensions, materials, colour, quantity)
- Price + currency + Incoterms
- Payment schedule with the balance tied to inspection
- Production and shipment timelines
- Right to inspection + AQL
- Liability for defects, replacement, refund
- Packaging and labelling
- Applicable law, arbitration, language, official chop
A contract works not when all is well, but when something goes wrong. The most important sections are the specification, staged payment, AQL and defect liability.
Don’t want to work out the terms yourself? We work under a contract with a specification, staged payment, inspection and accountability for quality — you get protection, not just a chat thread. We will explain in more detail for free.
Frequently asked questions
What must a contract with a Chinese factory include?
The supplier company's details and account, a detailed specification, the price with Incoterms, a payment schedule with the balance tied to inspection, timelines, the right to inspection and AQL, defect liability, packaging and the dispute-resolution procedure.
Why specify Incoterms in the contract?
Without Incoterms it is unclear what the price includes and who pays for logistics and risk. "$10,000 EXW" and "$10,000 CIF" are different final amounts, so the delivery terms are always fixed.
What is AQL in a contract?
AQL is an acceptable defect level under ISO 2859 agreed in advance: how many minor (often 4.0), major (2.5) and critical (0) defects are allowed per batch. The right to inspection and AQL remove the "defect or not" dispute.
What language should the contract be in?
Ideally bilingual (Chinese + your language) with a stated prevailing version. In a Chinese court and in arbitration the Chinese text governs first, so the translations must match.
Where do you resolve disputes with a Chinese supplier?
Arbitration is often specified — e.g. CIETAC (the China International Economic and Trade Arbitration Commission). An arbitration award is easier to enforce in China than a foreign court judgment.
Does a contract without the factory's chop protect you?
In China the official company chop (seal) carries legal weight, not just a signature. The contract must bear the seal of the legal entity matching the business licence, otherwise its validity is easily challenged.