The Four Essentials For Sourcing From China.

On point 4, some finer points of law:
Most countries (if not all) are “first to register” when it comes to Trademarks.
However, most countries also provide “prior use” exceptions for “first to register” in TM laws.
This is true in China as well, I believe. http://www.chinaiprlaw.com/english/laws/laws11.htm
Chapter III, Article 31
“An application for the registration of a trademark shall not create any prejudice to the prior right of another person, nor unfair means be used to pre-emptively register the trademark of some reputation another person has used.”
Meaning, if your company can establish prior use of XYZ name for the last 3 years, the other company cannot prejuidice your use of the XYZ name via a “first to register”.
Your prior use gets you continual right to use XYZ. However, you may not expand your use of XYZ as a trademark either. For example, if you made products under XYZ name in China, but you never sold the product under XYZ in China, then you might not be able to sell them in China after the other company registers XYZ trademark.
This is similar to prior use exception in US, in the Burger King TM case, http://en.wikipedia.org/wiki/Burger_King_(Mattoon,_Illinois).
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Registration of TM is always important, regardless of which country the business is in.
However, it is perhaps equally important to monitor TM’s in countries that your business is planning on going into, and anticipate potential problems.
Even if you are not yet in China, you may contest the registration of a TM by another company in China, if you already have substantial well known international use of your TM.
Chapter I, Article 13
“Where a trademark in respect of which the application for registration is filed for use for identical or similar goods is a reproduction, imitation or translation of another person’s trademark not registered in China and likely to cause confusion, it shall be rejected for registration and prohibited from use.”
Chapter III, Article 30
Any one may file an opposition to contest a TM registration, within 3 months of the TM preliminary approval and publication of TM.
(US has a similar provision to contest a TM federal registration on various grounds, similar to Chinese laws).
Chapter V, Article 41 also provides
“Where a registered trademark stands in violation of the provisions of Articles l3, l5, l6 and 3l of this Law, any other trademark owner concerned or interested party may, within 5 years from the date of the registration of the trademark, file a request with the Trademark Review and Adjudication Board for adjudication to cancel the registered trademark. Where a well-known mark is registered in bad faith, the genuine owner thereof shall not be restricted by the five-year limitation.”
Which means, you may also seek to contest the TM and have it cancelled within 5 years of registration.
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In sum, the statement that China is “first to file” is too generalized to wrap up the complexity of Chinese TM law.
In reality, China’s TM laws are very similar to US’s TM laws.

1 additional point relating to TM and Quality control,
Chinese Trademark law makes it the TM owner’s responsibility for ensuring the quality of the products sold under the TM.
Article 7
“Any user of a trademark shall be responsible for the quality of the goods in respect of which the trademark is used. The administrative authorities for industry and commerce at different levels shall, through the administration of trademarks, stop any practice that deceives consumers.”
This provision is quite different and broader than what is in US TM laws. US TM laws generally only prohibit Trademarking of “deceptively misdescriptive” marks, akin to false advertising. In other words, only the Act of Registering deceptive misdescriptive marks is prohibited. In US, actual false advertising without using any TM’s are generally covered under State laws, and generally stops only the act of false advertising.
But in China, the TM law gives broad authority to virtually all “administrative authorities for industry and commerce”, to “stop ANY practice” that deceives consumers, NOT just the trademarking itself.
In view of some of the recent product quality/safety crackdowns in China, under Chinese TM laws, TM owners may be liable for any product quality/safety issues, and may be subject to broad spectrum of administrative sanctions, even if the TM owners are not directly responsible for the issues arising from their sub-con’s.

Sunil,
By most country’s TM laws, TM owners are responsible for monitoring any TM infringement and assert their own TM rights (by lawsuits when necessary).
Governments are not responsible for “finding and prosecuting TM violations of their own volition”.
In US, if a TM owner does not vigilantly monitor and assert its own TM rights, then it may be barred from future assertion of TM rights, according to principles of “laches”, derived from Common Law.
Similarly, in China, a TM owner must monitor and assert its TM rights. As in US, TM owners should consider hiring a TM monitoring service (law firms, etc.) to investigate and monitor potential infringement activities, or to dedicate a sizeable portion of its own legal department to perform this function.
There have been number of TM cases in Chinese courts, with substantial victories for foreign companies who actually brought the cases.
For example, IKEA was able to win a case against a Chinese company.
(But this case was more about IKEA TM used as a domain name, relating to cybersquatting. The Chinese company registered the domain name IKEA.cn, before IKEA registered its TM in China. A Chinese appeals court, with a 3 judge panel, found in favor of IKEA, and required the Chinese company to turn over the domain name).
IKEA was obviously aggressive in asserting its TM rights in China, bringing a lawsuit against cybersquatters as soon as it entered China.
And it used its own investigations to uncover evidence of the Chinese company’s intent to cybersquat on the domain name, and the evidence was admissible in Chinese courts.
(Words on evidence rules in Chinese courts: Chinese courts are generally much more willing to consider evidence than most common law jurisdiction countries, because Chinese courts only recently implemented formal evidence rules).
http://www.managingip.com/Article/2460225/Chinas-evidence-rules-explained.html

Thanks for these tips, Dan!
The trademarking issue is of special interest and we’ve updated a guide on sourcing in China with a linkback to this useful post.