A PI that the factory sends back with its seal is very often the whole contract. Once you sign it or pay against it, the terms on it are what a Chinese court reads first (Civil Code art. 490). These are the twelve points I look for in the document before a client signs. Answer them for the document in front of you. Nothing you tick leaves your browser.
The party named in the document is the company on the factory’s business licence, and the seal on it is that company’s company seal or contract seal with the same Chinese name.
A seal with a different name, or a sales department stamp, invites an argument later about who agreed to the deal.
The Chinese and English texts say the same thing, and the language clause does not quietly let one text override the other.
Product, specification, quantity, unit price, currency and the delivery term (FOB, EXW or other) are all written in the document.
Quality is measured against a sealed sample (封样) that both sides signed and dated, and the document says who keeps it.
Without a sealed sample, a dispute over bulk quality turns into an argument about which sample was approved.
The document says when and by whom the goods are inspected, and how many days you have after receipt to raise a defect.
Late delivery has a price: liquidated damages per day or week, and your right to cancel with a refund after a stated delay.
The up-front payment is named in Chinese as you intend (定金 or 预付款), and the balance falls due against something you control, such as a passed inspection or the shipping documents.
Only 定金 carries the double-return rule, capped at 20% of the contract value (Civil Code arts. 586 and 587).
If there are molds or tooling: who pays, who owns them, a numbered list, and the factory’s duty to return them on request are all written down.
Your drawings, files and samples may be used only for your orders, the factory may not keep copies after the work ends, and it may not make your design for anyone else.
For processing work the Civil Code already bars the factory from keeping copies or technical files without your permission (art. 785). Writing it in, with the selling ban, avoids the argument over whether your order is processing work.
The factory may not pass production to another factory without your written consent.
The party in breach pays the other side’s lawyer’s fees, preservation fees and notary fees.
Without this clause a Chinese court usually leaves each side paying its own lawyer.
Disputes go to one clearly named forum: the court where the factory is, or one named arbitration commission.
A clause that names two forums, or an institution that does not exist, can mean a fight about jurisdiction before the fight about the goods.
What is usually missing
In the factory PIs clients bring to us, items 1, 4 and 8 are the ones most often absent. The name on the seal differs from the company on the PI, there is no sealed sample, and molds that the buyer paid for are not mentioned at all. None of these costs the factory anything to accept, and most factories do accept them when asked before the first payment. Once you have paid, the factory has much less reason to agree.
A PI is a fine place to start, but it is short. If most of your answers above are no, a manufacturing agreement with a PO format is the better document. For a first order with a new factory, our Factory Starter Package covers the NNN, the framework agreement, the PO format and the mold terms for one factory and one product line.
Sources
- PRC Civil Code (中华人民共和国民法典, effective 1 January 2021), articles 490, 586 and 587, text published in the Gazette of the Supreme People’s Court ↗
- PRC Civil Code (中华人民共和国民法典, effective 1 January 2021), article 785, text published in the Gazette of the Supreme People’s Court ↗
- Translations are mine and unofficial.
Want the document drafted or fixed before you sign?
A bilingual NNN is USD 1,500, first draft in 3 business days. The Factory Starter Package is USD 3,500 for one factory and one product line: NNN, manufacturing framework agreement, PO format and mold and design ownership terms, first draft in 5 business days. Fixed fees, answered in writing.