China Distribution Agreement

For most American SMEs, getting their products into China and then marketing, selling and delivering them is a difficult and massive task. Using an experienced Chinese distributor or distributors is oftentimes the best way for these companies to accomplish these things.

Distribution contracts with Chinese companies are both similar to and quite different from US distribution agreements. U.S. law makes it difficult and expensive to terminate distributors, but because China makes no special allowances for distributors, we draft our China distribution agreements to provide for applying Chinese law in a Chinese court. We also do not bother with provisions that try to work around distributor protections.

One big issue in China with nearly all distributor agreements is intellectual property protection. To “further” protect the IP of our American clients, we usually put into our distributor agreements what we call a “no registration” provision. In this provision, the distributor agrees that our client exclusively owns all trademarks or other IP that might be at risk, that the distributor gains no rights to those trademarks, and that the distributor will not register any IP in any way related to our client’s IP. We use the words “further protect” because the first line of protection for your in China should always be to register your trademarks in China right away.

China’s Anti-Monopoly Law prohibits retail price maintenance — which includes requiring a distributor sell goods at a minimum resale price to third parties. Therefore your China distribution agreements should not require your Chinese distributor sell your goods at a certain price.

One final important difference between Chinese and American distribution agreements is the signature line. Your Chinese distribution contract should provide a place for your Chinese distributor to affix its company seal because without that, a Chinese court might find your distribution contract invalid.

A distribution relationship with an experienced Chinese distributor and a China-specific distribution agreement may be just the solution for getting your product into China.

What do you think?

  • John Hoover

    One way to control the end user experience would be to sell your products on Tmall.com or Tmall.hk. In this way, you control your brand, interact directly with consumers and maintain quality. If your first market entry is ecommerce-based, you can also establish an end user market price from which you can derive a wholesale price. Finally, in your distributor agreement, you should prohibit the distributor from selling directly to consumers without compensating you and maintain stock for you to sell online in China.

  • Sabrina Bitmayl

    Do you need to set up a legal entity in China to enter in to a distribution agreement with a Chinese entity such as Tmall?