This article is part of a series for doing business in China. Over four blog posts, we go through eight typical risks that are easily overlooked by small and medium-sized businesses. These tips will help your company succeed in doing business with China.
Risk #7: There’s no contract, so it’s hard to prove breach of contract.
Too often, experienced business people rely upon verbal communication and sporadic emails with a foreign party as proof of that party’s intention to enter into a contract and specific rights and obligations.
In theory, the exchange of emails can create binding contracts in China as in the U.S. However, it is always extremely challenging to prove the parties’ intentions to form a contract. Furthermore, even if there is a contract, it may not make the specific terms clear.
To avoid any disputes down the road, both parties should sign written contracts. If there is any change in circumstances, you should insist on signing a supplemental agreement. Even if you trust the representative of your foreign business partner, the relationship between your two companies may not be as straightforward as you would like, and things can still go wrong.
Risk #8: The contract’s English and Chinese versions are not the same.
Contracts between parties speaking two different languages are often signed in bilingual versions. To avoid you and your trading partner in China having different interpretations of contract terms, you should make sure the English and Chinese language versions are the same. This is not as easy as it sounds.
Many people who can speak two languages believe they can translate a contract well. In fact, American/European companies rarely use a professional legal translator to translate or review the consistency of contracts with their Chinese partners, and this oversight can create substantial risk. Discrepancies between the two language versions may lead to disputes, and a Chinese judge may not interpret in your favour if two different versions are presented in front of a court.
This concludes our series of “Most easily overlooked risks when exporting to China.” If you would like a lawyer to check on the business you are working within China, consult our Due Diligence service and receive a colour-coded analysis report in 72 hours.
Do you need to check out a potential business partner in China once or regularly? Our Quick Company Verification will address all the issues mentioned above as a one-stop service. Check it out here.