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Introduction
Exporting to China presents tremendous opportunities but also unique risks, especially for small and medium-sized businesses. While you may carefully negotiate essential terms like price and payment, some critical details are often overlooked. These oversights can lead to surprises, financial losses, or disputes. This comprehensive guide outlines 8 common but avoidable risks to help you succeed in exporting products or services to China.
Risk #1: The Company You Negotiate with Is Not the Same Entity in the Contract
It’s common to assume that the company negotiating with you will also be the party in the contract. However, in China, businesses often work under similar-sounding names or as part of larger groups. The entity you negotiate with may differ from the one listed in the final contract—whether intentionally or not.
How to Avoid This Risk:
• Verify the company’s official Chinese name. The English name is just for reference.
• Ensure the name in the contract matches the legal entity listed in their Business License and Articles of Association.
Risk #2: The Person You Are Dealing with Lacks Legal Authority
In China, only a Legal Representative (typically the CEO, Chairperson, or General Manager) or someone explicitly authorized by them can bind a company legally. Relying on promises made by someone without proper authority can lead to invalid agreements.
How to Avoid This Risk:
• Confirm the identity of the company’s Legal Representative.
• Ensure contracts are signed by the legal representative or authorized personnel and stamped with the official company chop.
Risk #3: Lack of Import Licenses or Qualifications
China’s strict regulatory environment requires businesses to have appropriate licenses for importing specific goods, such as industrial chemicals or specialized machinery. A potential importer may lack the qualifications to legally import your product.
How to Avoid This Risk:
• Confirm the importer’s rights and qualifications for the specific products in question.
• Seek assistance from a legal professional to verify compliance with Chinese regulations.
Risk #4: Financial or Legal Stability of Your Business Partner May Change
A Chinese company may appear solvent when you sign the deal but face financial troubles later. Credit risks in China can fluctuate due to economic or sector-specific conditions. For example, the debt crisis involving China Evergrande highlights how a parent company’s financial trouble can impact its subsidiaries.
How to Avoid This Risk:
• Regularly monitor the credit status of your business partner, including whether they are listed as a “debtor lacking credibility” in Chinese courts.
• Conduct periodic due diligence, especially for long-term contracts.
Risk #5: Controlling Shareholder Issues
In China, subsidiaries may share liabilities with their controlling shareholder. If the parent company faces financial distress, it can drag subsidiaries into debt crises. For instance, Evergrande’s crisis affected over 1,300 of its subsidiary companies.
How to Avoid This Risk:
• Investigate whether your business partner is part of a larger conglomerate.
• Check for public records indicating financial difficulties at the group level.
Risk #6: Neglecting Trademark Registration in China
Trademark protection is jurisdictional. Without registering your trademark in China, you risk someone else registering it, potentially blocking you from using your brand in the Chinese market.
How to Avoid This Risk:
1. Register your trademark in China as soon as you plan to export there.
2. Investigate whether your potential partner has registered other trademarks to avoid dealing with a company that engages in predatory trademark practices.
Risk #7: No Written Contract
Verbal agreements or informal email exchanges are not reliable in Chinese business dealings. While emails can create legally binding agreements in theory, proving intent and enforcing terms can be challenging.
How to Avoid This Risk:
• Always use written contracts signed by both parties.
• If terms change, create a supplemental agreement and have it signed.
Risk #8: Discrepancies Between English and Chinese Contracts
Bilingual contracts are common in cross-border trade, but mismatched translations can cause disputes. If discrepancies arise, Chinese courts typically favor the Chinese version.
How to Avoid This Risk:
• Use professional legal translators to ensure consistency between the English and Chinese versions of the contract.
Checklist: Exporting to China Without Overlooking Risks
• Verify the legal entity and authority of your business partner.
• Confirm import licenses and regulatory compliance.
• Regularly assess financial stability.
• Protect your brand with trademark registration.
• Ensure all agreements are in writing and translations are accurate.
Call to Action
Navigating these risks demands thorough preparation and expert guidance. Whether it’s due diligence, trademark registration, or legal advice, our specialists are here to assist. Explore our Fixed-Price Services or visit China-Related Services to connect with a legal expert and get a free quote tailored to your needs.