Selling into the Chinese Market

In selling into the vast Chinese market, you will encounter some of the same issues as when sourcing from China. Most of your sales will likely come through arrangements with Chinese distributors, and so your contractual arrangements will be crucial.

Flows of liabilities, and in fact the business deal itself, are controlled by the contract between the parties. Care should be taken in understanding contract law of the countries where one will be conducting business. In China, contract law is unreliable and one may want to make contracts in China subject to Hong Kong law with Hong Kong as the venue for dispute resolution. Also, arbitration may be a more reliable solution for disputes rather than litigation.

Personal property being shipped to China (e.g., finished product for sale or raw materials for use in manufacturing your product) needs to be insured in transit, and control over the insurance should be maintained in all cases if at all possible. If the transit insurance will be handled by the foreign party, the sale should be on terms whereby risk of non-insurance or poor insurance falls to the party arranging the coverage, not to the innocent party. It is often not possible to know the financial strength and reliability of certain Chinese insurers.

Product liability in China is different from that in the US. The US system is largely (except in the case of FDA controlled products) made up of case law, and based on the negligence principle. In China liability for injuries from products of all types is governed by the country’s “Product Quality Law.” We need to know the law and all its intricacies, and make sure of compliance. For example:

“It is prohibited to …pass a defective product off as a high quality one;”

“All marks on the ...packages thereof shall meet the following requirements: (1) with certification showing that the product has passed quality inspection, (2) with the name of the product, name and address of the factory that produced the product, all being written in Chinese;”

“No producer may produce any product that has been officially eliminated by the state.”

The law consists of 50 plus such regulations, and also enumerates compensation for injuries including expenses, loss of earnings, disability benefit, funeral expenses, and even a “pension for the family of the deceased.”

We help you ensure compliance with product laws, and in general manage risks of selling into the Chinese market, so you can realize the market’s awesome potential.

“Article 37
Where products produced do not comply with the relevant national or trade standards safeguarding the health or safety of human life and property, the producer shall be ordered to stop the production, the products and earning illegally produced and made shall be confiscated, and, a fine from twice to five times the amount of the unlawful earnings shall be imposed concurrently, and the business licence may be revoked; if the case constitutes a crime, the offender shall be investigated for criminal responsibility according to law.”

Product Quality Law of The People’s Republic of China