Because of this blog, our China lawyers get a fairly steady stream of China law questions from readers, mostly via emails but occasionally via blog comments as well. If we were to conduct research on all the questions we get asked and then comprehensively answer them, we would become overwhelmed. So what we usually do is provide a super fast general answer and, when it is easy to do so, a link or two to a blog post that may provide some additional guidance. We figure we might as well post some of these on here as well. On Fridays, like today.
Though it is getting more difficult and expensive for foreign companies to do business in China, China’s burgeoning wealth means the number of companies wanting to sell one shirt to 1 percent of China’s middle class just keeps increasing. Many of those companies are realizing that one of the easiest ways to accomplish that is via their own distributer in China. See That’s Hot: China Distribution Contracts. One of the most common questions posed to our China attorneys about distribution relationships in China is whether they need to be exclusive or not. Oftentimes, these are not even in the form of a question, but rather the potential client or client telling us that they will be giving their distributor an exclusive for all of China because they “understand” the Chinese government requires that.
As we wrote in China Distribution Agreements: Exclusivity Is NOT Required, this is simply not true. Unfortunately, Chinese companies frequently claim this and sometimes even get away with it, sometimes with disastrous results for the foreign company.
Let me explain.
There is no exclusivity requirement in China. None. Nada. Zero. Zilch. 没有.
This means you can have five distributors of your product or in just Shanghai if you want, and then add ten more later. This means you can have an exclusive distribution relationship with one distributor for all of Shandong Province and still have ten distributors for just Beijing. You are legally free to do what you want when it comes to exclusivity in your distributor relationship in China; you are constrained only by the deal you are able to make.
Oh, and one more thing, Chinese companies love to use the term Greater China in their distribution contracts with foreign companies as many foreign companies do not realize that includes Hong Kong and Taiwan and Macao. So be careful about that also.