Enforcing contracts in China: Time to rely on writtenagreements again

www.hongdaservice.com /blog/enforcing-contracts-in-china-time-to-rely-on-written-agreements

Contract law in China

Given China's notorious past of countless deals falling through due to lack of transparency and a legal system thathas struggled to keep up with its rapid development, you'd be forgiven for thinking that enforcing contracts in Chinalags far behind the rest of the western world.

In reality, this is far from the truth. In fact, a data collection performed in June 2015 by The World Bank Group onenforcing contracts places China at no.7, well above 'more developed' countries the likes of Germany (12), France(14) and Luxembourg (17). This is certainly a testament to China's ongoing commitment to provide legaltransparency to the foreign companies/individuals that conduct business here.

China has made huge strides in terms of contract law that have helped make written agreements more reliable thanthey were before, but the country is still struggling to get rid of its bad rap due to cases where problems occasionallystem from the original drawing up of the contract itself.

In this blog from Hongda let's take a look at the necessary measures that should be taken when enforcing contractsin China...

1) The contract should be written in Chinese

Ensuring that the contract is written in Chinese is an absolute necessity when doing business in China. For obviousreasons this helps to communicate the terms of a contract in your Chinese partners' native tongue, ensuring thatthey understand all of the stipulations of the intended agreement. The translation must be done by an individual withthe necessary legal expertise and qualifications. The terms need to be communicated in an official, legal manner

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that other third-party translators may be unqualified to do.

By dictating the terms of the contract in English first, you will have peace of mind in knowing that everything youhave communicated can be thoroughly understood. However, it is important to note that using English to draw up acontract that is translated into Chinese requires one to specify which language should be used if there is a breach ofcontract. The contract needs to have an official language, so for the sake of avoiding confusion, additional legalfees, and possibly more legal issues, it is advised to keep the official language as Chinese.

2) The contract should be localized

This deals with writing the contract in such a way that it is enforceable in a local Chinese court. A lot of foreignbusinesses draw up contract terms without taking China's legal system into consideration or ensuring that they aregoverned by Chinese law, giving them a much smaller chance of negotiating legal proceedings that lead to afavorable outcome. Drawing up contracts that are intended to be governed by overseas courts will help very little ina Chinese court. It is up to foreign businesses to ensure that local contracts can be applied to Chinese law, and thisis especially important when entering into a joint venture in China with a local partner.

3) The contract terms should be very specific

When it comes down to the terms of a contract, there is nothing like being too specific. The only way that foreignbusinesses can truly protect their interests is to clearly outline their terms and expectations. This goes back to thepoint of translating the contract. It is of vital importance that the finer details of one's terms are translated in a waythat ensures that both parties understand what they are liable for should there be a breach of contract.

Conclusion

The message here is that for Chinese contracts to be enforceable they need to be compliant with localChinese law.

This means getting a qualified translator to thoroughly communicate the specifics of the terms to ensure that theyhave legal standing within China.

The myth that Chinese contracts are worth little more than the paper they are written on is a huge misconceptionabout doing business in China. They just need to be written and communicated in a way that ensures they 'speak'your Chinese partners' language!

What is your experience with enforcing contracts in China? Do you have any horror or success stories to share withour community? Please let us know by adding a comment below this blog post!

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