Chinese Contract Law for Foreign Businesses: Formation, Validity, Performance, Interpretation, and Enforceability of Commercial Agreements

Chinese Contract Law for Foreign Businesses: Formation, Validity, Performance, Interpretation, and Enforceability of Commercial Agreements

Introduction

Contracts are the legal foundation of commercial relationships in China. Whether a foreign enterprise purchases goods from a Chinese manufacturer, appoints a local distributor, enters into a technology agreement, licenses intellectual property, commissions professional services or establishes a joint commercial project, the rights and obligations of the parties will ordinarily depend on the contractual framework governing their relationship.

For foreign businesses, understanding Chinese contract law is particularly important because commercial agreements are affected not only by the wording of the contract but also by the identity and authority of the parties, mandatory legal requirements, the nature of the transaction, the applicable law and the procedures available for resolving disputes.

China has developed a comprehensive system of contract regulation within its civil-law framework. The principal source is Book Three of the Civil Code of the People’s Republic of China, which entered into force on 1 January 2021. It replaced the former Contract Law of 1999 and consolidated the general principles governing contractual relationships with provisions addressing specific types of contracts.

The Civil Code regulates contract formation, validity, performance, modification, transfer, termination and liability for breach. It also contains detailed rules governing transactions such as sales, leases, loans, guarantees, financial leasing, construction contracts, technology agreements, transportation and other commercial arrangements.

The Supreme People’s Court has further clarified the application of these provisions through its Interpretation on Several Issues Concerning the Application of the General Provisions of the Contract Part of the Civil Code, effective from 5 December 2023. This judicial interpretation is particularly significant for foreign businesses because it addresses the formation of contracts, preliminary agreements, standard contractual terms, corporate representation, contractual interpretation, validity and remedies for breach.

International commercial transactions may also be governed by rules of private international law and international conventions. The Law of the People’s Republic of China on the Application of Laws to Foreign-Related Civil Relations allows parties, in qualifying foreign-related contractual relationships, to choose the applicable law. China is also a contracting state to the United Nations Convention on Contracts for the International Sale of Goods (CISG), which may govern qualifying international sales contracts.

The practical significance of these rules is considerable. A contract written in English and signed by a Chinese business partner is not necessarily governed by English law. A company stamp does not automatically resolve every question of authority. A choice-of-law clause does not necessarily exclude mandatory Chinese legislation. Similarly, an arbitration clause that appears comprehensive may create difficulties if the chosen institution, seat or procedural arrangements are inadequately specified.

Foreign enterprises therefore need to understand both the substantive rules of Chinese contract law and the legal environment in which commercial agreements are concluded and enforced.

Key Takeaways

• The principal legislation governing contracts in China is Book Three of the Civil Code, effective from 1 January 2021.
• The Civil Code applies to both civil and commercial contractual relationships, subject to specialised legislation and applicable international conventions.
• Contracts may generally be formed through written, oral or other legally recognised forms, including electronic communications.
• The essential elements of an agreement, the parties’ intentions and the circumstances of formation are relevant to determining whether a contract exists.
• A contract may be valid even where the parties have not signed a traditional paper document, provided the legal requirements for formation are satisfied.
• The authority of the person signing for a Chinese company should be verified independently of the presence of a company seal.
• Mandatory legal provisions, public policy and sector-specific approval requirements may affect contractual validity and enforceability.
• Foreign-related contracts may permit an express choice of governing law, but mandatory Chinese rules can continue to apply.
• China is a party to the CISG, which may govern international sales contracts between businesses in different contracting states.
• The Civil Code recognises performance obligations, good faith, cooperation, notification and confidentiality duties.
• Contractual remedies include continued performance, corrective measures, damages, liquidated damages and termination where the statutory requirements are satisfied.
• The ordinary limitation period for bringing a civil claim is generally three years, subject to applicable exceptions.
• Foreign businesses should pay particular attention to governing law, dispute resolution, language, payment, delivery, intellectual property, confidentiality and evidence.

1. The Legal Framework Governing Contracts in China

1.1. The Civil Code as the principal source of contract law

The Civil Code is the central source of Chinese private law. It was adopted on 28 May 2020 and entered into force on 1 January 2021.

Book Three, entitled Contracts, contains Articles 463–988. It establishes the general framework for contractual relationships and regulates numerous specific contract types.

The general provisions address matters including:

• Contract formation.
• Contractual validity.
• Interpretation of contractual terms.
• Performance and cooperation.
• Modification and transfer.
• Suspension and termination.
• Liability for breach.
• Remedies and damages.

The special provisions regulate particular contractual relationships, including sales, supply-related transactions, donations, loans, guarantees, leases, financial leasing, construction contracts, transportation, technology contracts, warehousing, agency, brokerage and other arrangements.

The Civil Code is therefore not limited to private consumer agreements. It is also fundamental to commercial relationships between businesses.

1.2. The relationship between the Civil Code and specialised legislation

Although the Civil Code provides the general framework, commercial contracts may also be subject to separate legislation.

Relevant laws include:

• The Company Law, governing the legal organisation and authority of companies.
• The Electronic Signature Law, addressing electronic signatures and the legal recognition of electronic documents.
• The E-Commerce Law, regulating certain electronic commercial activities.
• The Foreign Investment Law, where a transaction involves foreign investment.
• The Product Quality Law, where product conformity and quality obligations arise.
• The Anti-Unfair Competition Law, where commercial conduct and confidentiality issues are involved.
• The Intellectual Property laws, where technology, licensing, trademarks, patents or copyright are involved.
• The Arbitration Law, governing arbitration within China.
• The Civil Procedure Law, governing proceedings before Chinese courts.

A transaction may also be subject to administrative regulations and sector-specific rules. For example, a contract involving financial services, construction, telecommunications, healthcare, education or regulated products may require compliance with additional legal requirements.

The applicable framework must therefore be determined by examining the substance of the transaction rather than relying exclusively on the general rules of the Civil Code.

1.3. The Supreme People’s Court’s 2023 Contract Interpretation

The Supreme People’s Court’s Interpretation on Several Issues Concerning the Application of the General Provisions of the Contract Part of the Civil Code, promulgated in December 2023, provides authoritative judicial guidance on the application of the Civil Code’s general contractual rules.

It addresses several issues of particular importance to commercial parties:

• Determining whether a contract has been formed.
• Establishing the legal effect of preliminary agreements.
• Identifying and interpreting standard contractual terms.
• Determining whether a company representative had authority.
• Assessing the effect of contractual seals.
• Interpreting ambiguous contractual provisions.
• Evaluating the consequences of mandatory legal requirements.
• Assessing liquidated damages and contractual remedies.

The Interpretation is especially useful because it addresses situations that arise frequently in commercial practice but are not always resolved by examining the wording of a contract in isolation. <Cite refs={[“turn653685view3″,”turn295803search8”]}/>

1.4. No separate comprehensive commercial code

China does not have a separate commercial code equivalent to the commercial codes found in some civil-law jurisdictions.

Commercial contracts are generally governed by the unified contractual framework of the Civil Code, supplemented by specialised legislation.

This means that the distinction between civil and commercial agreements is not based on two entirely separate general systems of contract law. Instead, the nature of the transaction determines which additional statutory provisions may apply.

For foreign businesses, this creates a relatively unified contractual framework, although specialised transactions remain subject to their own regulatory requirements.

2. Contract Formation Under Chinese Law

2.1. General principles of formation

A contract is formed through the agreement of the parties in accordance with the requirements of Chinese law.

The Civil Code recognises the principle of contractual autonomy, allowing parties to establish, modify and terminate civil legal relationships within the limits of the law.

Article 471 provides that parties may conclude a contract through an offer and acceptance or by other means.

A contract must reflect a legally recognisable agreement concerning the relevant transaction. The parties must be identifiable, and the subject matter and essential terms must be sufficiently established for the agreement to be recognised.

Article 483 generally provides that a contract is formed when an acceptance becomes effective, unless the law provides otherwise or the parties have agreed on another arrangement.

Article 490 also recognises circumstances in which a contract requiring a written form is concluded through signature, a seal or a fingerprint. Where a party performs its principal obligations before the formalities are completed and the other party accepts that performance, the contract may also be regarded as formed.

The practical result is that the existence of a contract cannot always be determined solely by asking whether a final document has been signed.

2.2. Offers

An offer is a proposal intended to create a contractual relationship upon acceptance.

Under the Civil Code, an offer must express an intention to conclude a contract and must contain sufficiently definite terms. It must also indicate that the offeror will be bound if the proposal is accepted.

Commercial proposals, quotations, tender documents and formal contractual offers may therefore have different legal consequences depending on their content and circumstances.

For example, a Chinese manufacturer may send a foreign buyer a quotation identifying the goods, quantities, prices and delivery arrangements. Whether the quotation constitutes an offer or merely an invitation to negotiate depends on its wording and the surrounding circumstances.

A document labelled “quotation” is not automatically legally non-binding. Conversely, a document described as a “final offer” does not necessarily create a contract if essential terms remain unresolved or acceptance has not occurred.

Foreign companies should therefore use precise language when communicating commercial proposals.

2.3. Acceptance

Acceptance is the expression of agreement to an offer.

Under the Civil Code, acceptance must generally correspond to the terms of the offer. A response that materially changes the proposed terms may constitute a new offer rather than an acceptance.

For example, if a Chinese supplier offers to deliver 10,000 units at a specified price and the foreign buyer responds by accepting the quantity but demanding a different price and delivery schedule, the response may constitute a counteroffer.

The timing and communication of acceptance are important because they determine when the contract is formed.

Where the parties negotiate through email, electronic platforms or other communication systems, the legal rules governing electronic communications and the effectiveness of acceptance must be considered.

2.4. Negotiations and preliminary agreements

Commercial negotiations frequently involve letters of intent, memoranda of understanding, exclusivity arrangements, reservation agreements and preliminary contracts.

These documents are not necessarily legally equivalent.

A memorandum of understanding may simply record the parties’ intention to continue negotiations. A preliminary agreement may create an enforceable obligation to enter into a future definitive contract.

The Supreme People’s Court’s 2023 Interpretation clarifies that documents such as subscription agreements, reservation agreements and appointment agreements may constitute legally binding preliminary contracts where they establish the parties and the essential subject matter of the future transaction and demonstrate an intention to conclude a further contract within an agreed period.

A party that refuses to conclude the definitive agreement, or conducts negotiations contrary to the principle of good faith, may incur liability for breach of the preliminary agreement.

The Interpretation also distinguishes a preliminary contract from a document that merely expresses an intention to negotiate. The label used by the parties is not decisive; the actual content and legal intention matter. <Cite refs={[“turn653685view3”]}/>

Foreign enterprises should therefore avoid assuming that a letter of intent is automatically non-binding. It is preferable to identify expressly which provisions are intended to create immediate legal obligations and which remain subject to a definitive agreement.

2.5. Oral and written contracts

The Civil Code generally recognises written, oral and other legally permitted forms of contracts.

Article 469 defines written form broadly. It includes contracts, letters and data messages that can tangibly express their contents, including electronic communications such as electronic data interchange and email.

Some transactions may be subject to special requirements concerning written form, registration, approval or other formalities.

For example, certain guarantees, property transactions, financial arrangements and regulated activities may require additional documentation or procedural steps.

Even where oral agreements are legally possible, written contracts are strongly preferable for international commercial transactions. They reduce uncertainty concerning the parties’ intentions, payment obligations, specifications, delivery conditions and remedies for breach.

2.6. Electronic contracts

Electronic contracting is recognised under Chinese law.

An agreement concluded through an electronic data message may satisfy the written-form requirement where the information can be reliably displayed and retrieved.

Electronic signatures may also have legal effect under the Electronic Signature Law.

The legal recognition of electronic contracts does not mean that every digital interaction automatically constitutes an enforceable agreement. The parties must still establish the existence of an offer, acceptance and legally sufficient contractual terms.

Foreign businesses should retain complete electronic records, including the original messages, timestamps, attachments, platform records and evidence identifying the persons who communicated acceptance.

For transactions with significant financial consequences, the parties should also specify the electronic systems and authorised communication channels through which contractual notices and amendments may be transmitted.

3. Essential Contractual Terms and the Content of Agreements

3.1. Identifying the parties

A commercial contract should identify each party accurately.

For a Chinese company, the foreign enterprise should verify its registered Chinese name, unified social credit code, registered address and legal representative.

The identity of the contracting entity is especially important where a Chinese corporate group contains several subsidiaries, affiliates, factories, trading companies or distribution entities.

A foreign buyer should not assume that the company negotiating the transaction is necessarily the company that will manufacture the goods, receive payment or assume liability.

Where several entities participate, the contract should identify their respective roles and responsibilities.

3.2. Subject matter and specifications

The subject matter must be sufficiently identifiable.

For a sale of goods, the contract should specify the products, quantities, technical characteristics, quality standards, packaging and other relevant details.

For a services agreement, it should identify the services, deliverables, milestones, professional standards and acceptance criteria.

For technology or licensing arrangements, the contract should describe the relevant rights, permitted uses, territory, duration, technical materials and restrictions.

Ambiguous descriptions can create serious difficulties when a party later alleges that the goods or services did not meet the agreed requirements.

3.3. Price and payment arrangements

Price is a central commercial term.

The contract should identify:

• The agreed price or pricing formula.
• The currency.
• The payment method.
• Payment deadlines.
• Advance payments and deposits.
• Milestone payments.
• Bank charges and transfer costs.
• Conditions for withholding or delaying payment.
• Consequences of late payment.

Foreign enterprises should distinguish between the contractual payment obligation and the regulatory requirements governing cross-border transfers, foreign exchange and tax documentation.

The contract should also identify the correct beneficiary account and establish procedures for verifying any change in bank details. Fraudulent payment instructions are a recognised commercial risk in international trade.

3.4. Delivery and acceptance

Delivery provisions should define the place, date, method and conditions of delivery.

For international sales, the parties should consider whether to use Incoterms published by the International Chamber of Commerce.

Where Incoterms are used, the contract should identify the selected rule, the named place or port and the applicable edition. Incoterms allocate certain delivery obligations, costs and risks, but do not replace the entire sales contract or determine every question of ownership, payment or remedies.

Acceptance procedures should also be clearly defined. A contract may specify inspection periods, testing requirements, rejection procedures, notification deadlines and the consequences of failure to report defects.

Foreign buyers should avoid vague provisions such as “goods must be satisfactory” without objective criteria.

3.5. Confidentiality and intellectual property

Commercial contracts often involve confidential information, technical data, product designs, source code, manufacturing processes, customer information and other valuable business materials.

Confidentiality provisions should define protected information, permitted uses, authorised recipients, security obligations, exceptions and the consequences of unauthorised disclosure.

Intellectual property clauses should distinguish between pre-existing rights and rights created during the contractual relationship.

For example, a manufacturing agreement should clarify who owns product designs, tooling, technical drawings, improvements, software and other materials developed during the project.

The parties should not assume that payment for a product or service automatically transfers all associated intellectual property rights.

4. Validity and Enforceability of Commercial Contracts

4.1. General requirements for validity

A contract may be formed but still be affected by a defect in validity.

Under the Civil Code, the validity of a civil juristic act depends on matters including the parties’ capacity, the authenticity of their intentions and compliance with applicable legal requirements.

A contract may be invalid, voidable or ineffective in particular circumstances.

The distinction is important because the legal consequences differ.

An agreement may exist as a matter of fact but fail to produce the intended legal consequences because of a defect in consent, authority, mandatory formalities or legality.

4.2. Capacity and authority

The parties must have the legal capacity and authority required to enter into the agreement.

For a corporate party, this includes examining whether the person signing has authority to represent the company or has been properly authorised to act on its behalf.

The foreign enterprise should verify the identity and position of the Chinese signatory, the company’s registered details and any internal or external approvals required for the transaction.

Where the agreement is particularly important, it may be appropriate to request board resolutions, powers of attorney or other supporting documents.

4.3. Genuine intention and defects in consent

Chinese law recognises legal consequences where a contract is formed through fraud, coercion, serious misunderstanding or other legally recognised defects in intention.

A party may have a right to request the revocation of a contract where the relevant statutory conditions are satisfied.

The Civil Code also addresses exploitation of a party’s vulnerable position or lack of judgment in circumstances that produce a manifestly unfair transaction.

The availability of revocation depends on the particular legal ground and the applicable time limits.

Foreign companies should distinguish between an unfavourable commercial bargain and a legally defective agreement. A contract does not become voidable simply because one party later considers the negotiated terms economically disadvantageous.

4.4. Contracts violating mandatory legal provisions

Article 153 of the Civil Code provides that a civil juristic act violating mandatory provisions of laws or administrative regulations is generally invalid, unless the relevant mandatory provision does not lead to invalidity.

A contract may also be invalid where it violates public order and good morals.

However, not every regulatory violation automatically makes a contract void.

The Supreme People’s Court’s 2023 Interpretation clarifies that the court should consider the purpose of the mandatory provision and whether the relevant administrative or criminal consequences can achieve that purpose without invalidating the contract.

This distinction is particularly important in regulated industries. A foreign enterprise should not assume that every failure to obtain an administrative document automatically invalidates the entire agreement, but neither should it assume that an otherwise commercially complete contract is enforceable where mandatory approval requirements have not been satisfied. <Cite refs={[“turn653685view3”]}/>

4.5. Contracts requiring approval

Some contracts are subject to statutory approval or other administrative procedures.

Article 502 of the Civil Code distinguishes the formation of a contract from the completion of procedures required for its effectiveness.

Where a contract requires approval, the failure to obtain it may prevent the contract from becoming effective in the intended manner. However, provisions concerning the obligation to apply for approval and liability for failing to do so may remain effective.

The Supreme People’s Court’s 2023 Interpretation further clarifies that a party responsible for obtaining approval may be ordered to perform that obligation. Failure to do so may support termination and a claim for compensation in appropriate circumstances.

Foreign investors should therefore identify approval requirements before signing and specify which party is responsible for obtaining each approval, by what deadline and with what consequences if approval is refused.

4.6. The legal effect of company seals

Company seals, often referred to as chops, play an important practical role in Chinese commercial transactions.

A company seal may be used to authenticate contracts, documents and other corporate communications. However, the existence of a seal does not eliminate the need to examine the authority of the person acting for the company.

The Supreme People’s Court’s 2023 Interpretation addresses disputes involving legal representatives, employees and company seals.

The legal assessment may depend on whether the person had authority, whether the company authorised or subsequently ratified the transaction, whether the counterparty acted in good faith and whether the circumstances justify attributing the transaction to the company.

A foreign enterprise should therefore not rely exclusively on the presence of a company seal.

It should verify the contracting company’s identity, the signatory’s authority and the circumstances in which the agreement is executed.

Equally, the absence of a particular seal does not automatically establish that no contract exists. The relevant provisions of the Civil Code and the actual conduct of the parties must be considered.

4.7. Standard contractual terms

Standard terms are provisions prepared in advance by one party for repeated use and not individually negotiated with the other party.

They are common in online agreements, supply contracts, logistics arrangements, service agreements and other commercial transactions.

Articles 496–498 of the Civil Code establish special rules governing standard terms.

The party providing standard terms must draw the other party’s attention to provisions that materially affect its interests, including terms that exclude or limit liability or restrict important rights. It must also provide explanations when reasonably requested.

A standard term may be excluded from the contract where the provider fails to satisfy the statutory obligations and the other party did not become aware of the term.

Certain standard terms may also be invalid, including provisions that unreasonably exempt the provider from liability, increase the other party’s liability or exclude important rights.

Where a standard term is ambiguous, the Civil Code provides interpretive rules that may favour the interpretation against the party supplying the term.

The 2023 Supreme People’s Court Interpretation clarifies how the duty to highlight and explain significant standard terms is assessed. Merely placing a checkbox or pop-up on an electronic platform is not necessarily sufficient evidence that the required duties were fulfilled. <Cite refs={[“turn653685view3”]}/>

5. Interpretation of Commercial Agreements

5.1. The importance of contractual interpretation

A contract may contain language that appears clear to one party but has a different meaning in the commercial context.

Disputes may concern technical specifications, delivery obligations, quality standards, payment conditions, exclusivity, liability limitations or the meaning of a particular expression.

Chinese contract law does not treat the literal wording of an agreement as the only possible source of interpretation.

Article 466 of the Civil Code provides for the application of the relevant rules on interpretation of civil juristic acts to contractual disputes.

Article 142 establishes interpretive considerations including the words used, the relevant provisions, the nature and purpose of the transaction, customary practices and the principle of good faith.

5.2. Contractual purpose and surrounding circumstances

The Supreme People’s Court’s 2023 Interpretation clarifies that courts should begin with the ordinary meaning of the contractual words but may also examine:

• The relationship between different provisions.
• The nature and purpose of the agreement.
• Commercial practices.
• The principle of good faith.
• The background to negotiations.
• The negotiation process.
• The conduct of the parties during performance.

This means that pre-contractual communications and subsequent performance may become important evidence in a dispute.

For example, a foreign buyer and a Chinese manufacturer may disagree over whether a quality clause requires compliance with a particular international technical standard. The court may examine the contract’s wording, technical schedules, negotiation records, prior transactions and the parties’ conduct.

5.3. Trade usage and established practices

Commercial practices may assist in interpreting contractual obligations.

Article 10 of the Supreme People’s Court’s 2023 Interpretation recognises trade usage in appropriate circumstances, including practices regularly followed between the parties or practices commonly adopted in a particular locality, industry or field and known, or reasonably expected to be known, to the other party.

However, the party relying on a trade usage must establish its existence and relevance.

A foreign enterprise should therefore avoid relying on an informal understanding that a particular industry practice will automatically be recognised by a Chinese court.

Where an industry standard or established practice is commercially important, it is preferable to incorporate it expressly into the agreement.

5.4. Language and bilingual agreements

Foreign businesses frequently conclude contracts in both Chinese and English.

A bilingual agreement should specify whether both versions are equally authoritative or whether one language prevails in the event of inconsistency.

Where the Chinese text is intended to control, the foreign party should ensure that the translation accurately reflects the commercial agreement.

The parties should pay particular attention to technical terms, payment obligations, remedies, limitations of liability and dispute-resolution provisions.

A poorly translated clause may create uncertainty even where the parties believe they have reached a complete agreement.

6. Performance of Commercial Contracts

6.1. General obligations of performance

Article 509 of the Civil Code establishes the principle that parties must perform their contractual obligations fully in accordance with the agreement.

It also requires compliance with the principles of good faith and cooperation.

Depending on the nature of the contract, these obligations may include notification, assistance, confidentiality and other duties arising from the transaction.

Performance must be assessed in light of the contractual terms, applicable law and the nature of the obligations undertaken.

6.2. Good faith and cooperation

Good faith is an important principle of Chinese contract law.

It affects not only the performance of express contractual obligations but also the conduct reasonably expected of the parties during the contractual relationship.

For example, a supplier may be required to provide relevant information about a production delay, while a buyer may need to cooperate with inspection or acceptance procedures.

The duty of good faith does not permit a party to disregard clear contractual provisions merely because it considers another arrangement more commercially reasonable.

It does, however, influence the interpretation and performance of obligations where the contract or applicable law leaves room for cooperation and reasonable conduct.

6.3. Unclear contractual terms

Where the parties have not agreed on a particular term or have expressed it ambiguously, the Civil Code provides mechanisms for resolving the gap.

Article 510 allows the parties to supplement the agreement through negotiation.

Where agreement cannot be reached, the relevant contractual provisions and applicable rules under Article 511 may determine the missing term.

These rules address matters such as quality, price, place and time of performance and other relevant obligations.

Foreign businesses should not deliberately leave important matters unresolved on the assumption that a court will always supply a commercially favourable answer.

6.4. Simultaneous and sequential performance

The Civil Code regulates situations in which the parties have reciprocal obligations.

Where neither party is required to perform first, the parties may have a right to refuse performance until the other party performs.

Where one party must perform first, it may have a right to suspend performance if the other party’s ability to perform has materially deteriorated or there is other legally recognised evidence of a serious risk of non-performance.

These rules are important in international supply arrangements, particularly where one party must manufacture or deliver goods before receiving full payment.

6.5. Payment and delivery

Payment and delivery provisions should be drafted with precision.

The contract should identify when payment becomes due, what documents must be supplied, where delivery takes place and how acceptance is established.

The parties should also distinguish between the transfer of physical possession, the transfer of ownership and the allocation of risk.

These concepts may be governed by different contractual and statutory rules.

A clause that merely states that goods are delivered “upon shipment” may not adequately resolve every question concerning ownership, risk, inspection or payment.

6.6. Force majeure

Article 180 of the Civil Code recognises force majeure as an objective circumstance that is unforeseeable, unavoidable and insurmountable.

Article 590 provides that a party unable to perform its contractual obligations because of force majeure may be exempted from liability in whole or in part according to the impact of the event, unless the law provides otherwise.

The affected party must notify the other party in a timely manner and provide evidence within a reasonable period.

A party that is already in delay before the force majeure event occurs generally cannot rely on that event to avoid liability for the existing delay.

Force majeure should not be treated as a general escape clause for commercial difficulty.

A decline in demand, increased production costs, shortage of funds or an ordinary supplier problem does not automatically qualify.

Foreign businesses should define notification procedures, evidence requirements, mitigation duties and the consequences of prolonged disruption.

6.7. Change of circumstances

The Civil Code also recognises a doctrine commonly translated as change of circumstances or change of circumstances making performance manifestly unfair.

Article 533 addresses circumstances in which a fundamental change occurs after the conclusion of a contract that was not foreseeable by the parties when contracting and does not constitute an ordinary commercial risk.

Where continued performance would be manifestly unfair to one party, or would frustrate the contractual purpose, the affected party may seek renegotiation.

If renegotiation fails, the parties may request the people’s court or an arbitration institution to modify or terminate the contract in accordance with the statutory conditions.

This doctrine is distinct from force majeure.

Force majeure concerns an event that prevents performance or affects the ability to perform. Change of circumstances concerns a substantial alteration of the contractual basis that makes continued performance manifestly unfair or defeats the contractual purpose.

A party cannot invoke the doctrine merely because the agreement has become less profitable.

7. Modification, Assignment and Transfer of Contractual Rights

7.1. Modification by agreement

Article 543 allows the parties to modify a contract by agreement.

A modification should be documented clearly, particularly where it concerns price, quantity, delivery, payment, duration or liability.

Where a modification is made without sufficient clarity, Article 544 provides that the contract is presumed not to have been modified if the content of the change cannot be determined.

For foreign enterprises, written amendments signed by authorised representatives are generally preferable to informal messages or undocumented discussions.

7.2. Assignment of contractual rights

A creditor may generally assign contractual rights to another person, subject to statutory exceptions and contractual restrictions.

The assignment may require notification to the debtor. Without the required notification, the assignment may not be effective against the debtor.

Certain rights cannot be assigned because of their nature, the parties’ agreement or legal restrictions.

7.3. Transfer of contractual obligations

The transfer of obligations generally requires the consent of the creditor.

This protects the creditor against being required to accept performance from a different party without agreement.

For example, a foreign buyer should not assume that a Chinese supplier may freely transfer all manufacturing and delivery obligations to an unrelated entity without considering the contractual and statutory requirements.

7.4. Transfer of the entire contractual relationship

Where a party transfers both its rights and obligations, the consent of the other party is generally required.

The parties should also consider whether the transfer affects guarantees, security arrangements, licences, intellectual property or regulatory approvals.

8. Breach of Contract and Legal Remedies

8.1. General liability for breach

Article 577 of the Civil Code provides that where a party fails to perform its contractual obligations or performs them inconsistently with the agreement, it may be liable for breach of contract.

The available remedies include:

• Continued performance.
• Taking corrective measures.
• Repair, replacement or re-performance.
• Compensation for losses.
• Payment of liquidated damages where validly agreed.
• Other remedies available under the law or contract.

The appropriate remedy depends on the nature of the breach and the contractual relationship.

8.2. Specific performance

Chinese law recognises claims requiring a party to continue performing its contractual obligations.

However, specific performance is not available in every circumstance.

The Civil Code identifies situations in which continued performance may be legally or practically inappropriate, including circumstances where performance is impossible in fact or law, the obligation is unsuitable for compulsory performance, or the creditor fails to request performance within a reasonable period.

A foreign enterprise should therefore not assume that a court will always order a supplier to manufacture or deliver goods simply because the contract contains an express delivery obligation.

8.3. Damages

Article 584 provides for compensation for losses caused by breach of contract.

The recoverable amount may include the benefits that the non-breaching party could reasonably have expected to obtain from performance, subject to the statutory limitation that the loss must not exceed what the breaching party foresaw or should have foreseen when the contract was concluded.

This foreseeability principle is important in commercial transactions.

A foreign buyer claiming damages for late delivery should be prepared to demonstrate the loss, its connection with the breach and its reasonable foreseeability.

The parties should also preserve evidence of additional costs, replacement purchases, lost production time and other relevant losses.

8.4. Liquidated damages

Commercial agreements frequently include contractual provisions establishing a predetermined amount payable in the event of breach.

Article 585 recognises agreements concerning liquidated damages and mechanisms for determining compensation.

However, the agreed amount is not necessarily immune from judicial or arbitral adjustment.

Where the agreed liquidated damages are excessively higher than the actual loss, a party may request an appropriate reduction. Where they are lower than the actual loss, an increase may be requested under the statutory conditions.

The Supreme People’s Court’s 2023 Interpretation provides further guidance on the assessment of liquidated damages, including the relevance of the actual loss and the circumstances of the breach.

Foreign companies should therefore avoid assuming that an extremely high contractual penalty will automatically be enforced in full.

8.5. Mitigation of losses

The Civil Code requires the non-breaching party to take reasonable measures to prevent further loss.

Where it fails to do so, it may not recover losses that could reasonably have been avoided.

For example, a foreign buyer whose supplier fails to deliver essential materials may be expected to consider reasonable replacement purchases rather than allowing avoidable losses to accumulate indefinitely.

The duty to mitigate does not eliminate the breaching party’s responsibility. It limits recovery for losses that could reasonably have been prevented.

8.6. Termination of contracts

The Civil Code recognises termination by agreement and termination under statutory conditions.

Article 563 identifies circumstances in which a party may have a right to terminate, including:

• The failure to perform a principal obligation after being demanded to do so within a reasonable period.
• Conduct demonstrating that a party will not perform a principal obligation.
• Delay or other breach that frustrates the purpose of the contract.
• Other circumstances specified by law.

Article 562 allows the parties to agree on contractual grounds for termination.

The contract should specify the required notices, cure periods and consequences of termination.

Termination does not necessarily eliminate all liabilities. Outstanding payment obligations, damages, confidentiality obligations and other provisions intended to survive termination may remain effective.

9. Foreign-Related Commercial Contracts and Choice of Law

9.1. Identifying a foreign-related relationship

A commercial contract involving a foreign enterprise may qualify as a foreign-related civil relationship under Chinese private international law.

Relevant factors may include the nationality or legal status of the parties, the habitual residence or registered location of a party, the location of the subject matter and the place where relevant legal facts occur.

The precise classification matters because it determines whether the parties may choose a foreign governing law.

9.2. The right to choose governing law

Article 41 of the Law of the People’s Republic of China on the Application of Laws to Foreign-Related Civil Relations provides that parties may choose the law applicable to their contract by agreement.

Where no choice is made, the law of the habitual residence of the party whose performance best reflects the characteristic performance of the contract, or another law with the closest connection, may apply.

For a foreign-related commercial agreement, the parties may therefore choose Chinese law or a foreign law, subject to applicable legal restrictions.

A choice-of-law clause should be express and sufficiently clear.

For example, a clause may state that the agreement is governed by the laws of the People’s Republic of China, excluding its conflict-of-law rules, or identify another chosen legal system where the choice is legally permitted.

9.3. Limits on the choice of foreign law

The ability to choose foreign law is not unlimited.

Article 4 of the Law on the Application of Laws to Foreign-Related Civil Relations provides that mandatory provisions of Chinese law applicable to foreign-related civil relations apply directly.

Article 5 further provides that Chinese law applies where the application of foreign law would damage the public interests of China.

Certain transactions are also subject to special conflict-of-law rules.

For example, Article 42 addresses consumer contracts, while Article 43 addresses employment contracts.

The choice of a foreign governing law therefore does not automatically exclude all Chinese legal requirements.

9.4. Purely domestic contracts

A particularly important distinction concerns contracts without a foreign-related element.

Where both parties are Chinese entities and the transaction is otherwise entirely domestic, the parties generally cannot create a foreign-related relationship merely by inserting a clause choosing English, Singaporean or another foreign law.

The parties’ choice of governing law must be legally available under the applicable conflict-of-law rules.

Foreign companies should therefore avoid assuming that a foreign-law clause is effective simply because it appears in the agreement.

The circumstances of the transaction must support the relevant foreign-related element. <Cite refs={[“turn653685view1″,”turn653685view2”]}/>

9.5. Proving foreign law

Where a Chinese court must apply foreign law, the relevant foreign legal rules may need to be established.

Article 10 of the Law on the Application of Laws to Foreign-Related Civil Relations provides that foreign law is to be ascertained by the people’s court, arbitration institution or administrative authority. Where the parties choose foreign law, they are required to provide the relevant law.

If the foreign law cannot be ascertained, or does not contain a relevant provision, Chinese law may apply.

The Supreme People’s Court issued further rules concerning the ascertainment of foreign law, effective from 1 January 2024.

Foreign companies should therefore consider the practical implications of choosing a foreign governing law for proceedings in China. The clause may be legally valid, but establishing the content of the selected law can involve additional time, expense and evidentiary requirements. <Cite refs={[“turn295803search3″,”turn295803search0”]}/>

10. International Sales and the CISG

10.1. China’s participation in the Convention

China is a contracting state to the United Nations Convention on Contracts for the International Sale of Goods, commonly known as the CISG.

The Convention entered into force for China on 1 January 1988.

It establishes uniform rules governing the formation of qualifying international sales contracts and the rights and obligations of buyers and sellers.

Its provisions address matters including offers, acceptance, delivery, payment, conformity of goods, remedies for breach, damages and exemption from liability.

10.2. When the CISG may apply

The CISG may apply to an international sale of goods where the parties have their relevant places of business in different contracting states, subject to the Convention’s scope and any applicable exclusions.

China has made a reservation under Article 95 of the CISG. As a result, Chinese courts do not apply the Convention through Article 1(1)(b), which would otherwise allow it to apply where private international law rules lead to the law of a contracting state.

The Convention may nevertheless apply under Article 1(1)(a) where the buyer and seller have their relevant places of business in different contracting states.

This distinction is important for foreign businesses because the CISG may govern a qualifying sales contract even where the parties have not expressly selected it.

10.3. Excluding or modifying the CISG

Article 6 of the CISG allows the parties to exclude the Convention or derogate from or vary the effect of most of its provisions, subject to the applicable restrictions.

A contract may expressly state whether the CISG applies.

Where the parties intend Chinese domestic law to govern an international sales contract, they should consider carefully whether their wording is sufficiently clear to exclude the Convention if that is their intention.

A generic reference to “Chinese law” does not always provide the same certainty as an express provision addressing the CISG.

10.4. CISG and the Chinese Civil Code

The CISG and the Civil Code may operate together in international sales disputes.

The Convention governs matters within its scope. Questions not settled by the Convention may require reference to its general principles or the domestic law identified by the applicable conflict-of-law rules.

The parties should therefore understand which legal instrument governs each aspect of the transaction.

For international sales, the CISG may be more directly relevant than the general domestic sales provisions of the Civil Code.

The Convention’s official status and explanatory materials are available through UNCITRAL. <Cite refs={[“turn951939search2″,”turn951939search16″,”turn951939search1”]}/>

11. Dispute Resolution and Enforcement of Commercial Contracts

11.1. Litigation before Chinese courts

A commercial contract may provide for disputes to be resolved by the competent people’s court.

Where the parties choose litigation in China, the contract should identify the intended court or jurisdictional basis with sufficient precision and in accordance with the Civil Procedure Law.

Chinese courts may have jurisdiction over disputes involving Chinese parties, Chinese performance or other legally recognised connections.

Foreign businesses should consider the location of the defendant, the place of performance, the availability of evidence and the practical enforcement of any judgment.

11.2. Arbitration

Arbitration is widely used in international commercial transactions involving Chinese businesses.

The parties may agree to submit disputes to an arbitration institution, subject to the applicable law and the requirements for a valid arbitration agreement.

The clause should identify the arbitration institution and establish the scope of disputes covered.

It should also address the seat or place of arbitration, language, number of arbitrators and other procedural matters where appropriate.

Foreign enterprises often consider institutions such as the China International Economic and Trade Arbitration Commission (CIETAC), the Hong Kong International Arbitration Centre (HKIAC), the Singapore International Arbitration Centre (SIAC) and other recognised institutions, depending on the transaction and the parties’ preferences.

The legal consequences of selecting a particular institution and seat should be assessed carefully.

11.3. Arbitration clauses and separability

An arbitration agreement is generally treated as legally distinct from the main commercial contract.

The invalidity or termination of the main contract does not necessarily invalidate the arbitration clause.

This principle is important because a party should not be able to avoid an agreed dispute-resolution procedure merely by arguing that the main agreement is invalid.

The arbitration clause should nevertheless be drafted clearly and should satisfy the applicable legal requirements.

11.4. Enforcing foreign arbitral awards

China is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

This provides an important international framework for recognition and enforcement of qualifying foreign arbitral awards in China.

Enforcement is not automatic in every case. The competent court may examine the statutory grounds for refusing recognition or enforcement, including defects in the arbitration agreement, procedural irregularities and public policy considerations.

Foreign enterprises should therefore consider the location of the Chinese counterparty’s assets and the practical enforcement consequences when selecting arbitration arrangements.

11.5. Enforcing foreign court judgments

The recognition and enforcement of foreign court judgments in China are governed by the applicable provisions of Chinese civil procedure law and relevant international treaties or arrangements.

The position is not identical to the enforcement of foreign arbitral awards under the New York Convention.

Recognition may depend on treaty relationships, reciprocal arrangements and the applicable statutory conditions.

A foreign enterprise should not assume that a judgment obtained in its home country will automatically be enforceable against a Chinese debtor.

The dispute-resolution clause should be selected with enforcement in mind rather than merely according to the perceived prestige of a particular court or institution.

12. Limitation Periods and Evidence

12.1. The general limitation period

Article 188 of the Civil Code establishes a general limitation period of three years for claims seeking judicial protection of civil rights, unless another law provides otherwise.

The period generally begins when the rights holder knows or should have known that its rights have been infringed and who is responsible.

The Civil Code also establishes a general long-stop period of 20 years from the date of infringement, subject to the possibility of extension in special circumstances.

Foreign businesses should not assume that the limitation period begins only when negotiations fail or when the final amount of loss becomes known.

The starting point depends on the applicable statutory rules and the facts of the dispute. <Cite refs={[“turn951939search22″,”turn951939search10”]}/>

12.2. Limitation periods in arbitration

The limitation rules applicable to arbitration should also be examined.

Article 198 of the Civil Code provides that statutory rules governing limitation periods for arbitration should be followed and, where no special rules exist, the relevant litigation limitation provisions may apply by reference.

The applicable arbitration law, the nature of the claim and any special statutory provisions should therefore be considered.

12.3. Preserving contractual evidence

Commercial disputes often turn on evidence.

Foreign enterprises should retain:

• The signed contract and all amendments.
• Authorisation documents and corporate records.
• Relevant company registration information.
• Emails and electronic communications.
• Technical specifications and product samples.
• Delivery and inspection records.
• Invoices and payment documentation.
• Meeting minutes and negotiation records.
• Notices of breach and termination.
• Evidence of losses and mitigation measures.

Where the agreement is bilingual, both versions should be preserved together with evidence of which version was agreed to prevail.

Electronic evidence should be retained in a form that preserves its authenticity and integrity.

13. Drafting Commercial Contracts with Chinese Business Partners

13.1. Verify the contracting entity

Before signing, a foreign enterprise should verify the identity and legal status of the Chinese counterparty.

The Chinese company’s registered name and unified social credit code should be checked against official company registration information.

Where a trading company, factory, parent company and affiliate are involved, the contract should identify which entity is actually assuming the obligations.

13.2. Verify the signatory’s authority

The foreign enterprise should confirm that the person signing the contract is authorised to represent the Chinese company.

Where appropriate, it should request supporting corporate documents, a power of attorney or evidence of internal approval.

A company seal may be relevant evidence, but it should not replace the verification of authority.

13.3. Define the commercial obligations precisely

The agreement should clearly establish the subject matter, price, payment arrangements, specifications, delivery, acceptance, warranties and remedies.

Technical schedules should be incorporated expressly into the contract.

Where a transaction involves multiple stages, each stage should have identifiable deliverables and deadlines.

13.4. Select governing law deliberately

The parties should determine whether the agreement is foreign-related and whether they may lawfully choose the governing law.

Where the CISG may apply, the contract should address whether the parties intend to retain or exclude it.

Mandatory Chinese provisions should also be considered, especially in regulated sectors.

13.5. Draft a workable dispute-resolution clause

The clause should identify the court or arbitration institution, the applicable jurisdictional arrangements and the relevant procedural details.

The parties should consider where assets are located and how a judgment or award would be enforced.

A theoretically attractive dispute-resolution mechanism may be commercially ineffective if it creates serious enforcement difficulties.

13.6. Address language and notices

The contract should establish the authoritative language, the method of delivering notices and the addresses or electronic channels to be used.

It should also specify when a notice is deemed received.

These provisions can be particularly important where a party needs to exercise a right to terminate, demand payment or notify a force majeure event.

13.7. Include confidentiality and intellectual property protections

Where the transaction involves technology, designs, software, manufacturing processes or customer information, the agreement should establish clear ownership and permitted-use rules.

Confidentiality obligations should survive termination where appropriate.

13.8. Review regulatory requirements before performance

The parties should identify licences, approvals, registrations, export controls, product standards and other regulatory conditions that may affect the transaction.

A contract cannot safely be treated as a substitute for a required administrative approval or licence.

14. Common Contractual Mistakes Made by Foreign Businesses

Several recurring mistakes can create avoidable disputes.

Relying on informal assurances. Commercial representatives may make statements that are not incorporated into the final contract. Important promises should be recorded in the agreement or an enforceable amendment.

Assuming the company seal resolves every authority issue. A seal is important, but the authority of the signatory and the surrounding circumstances must also be examined.

Using vague technical specifications. Unclear product requirements make quality disputes difficult to resolve. Objective standards and inspection procedures are preferable.

Failing to distinguish the parent company from its affiliates. A foreign business may negotiate with one company but discover that another entity is expected to manufacture, deliver or receive payment.

Using a generic governing-law clause. The clause may be ineffective if the transaction is not foreign-related or may fail to address the CISG and mandatory Chinese provisions.

Assuming an agreement in English is sufficient. The parties should determine the authoritative language and verify that translations accurately reflect the negotiated terms.

Ignoring approval requirements. Some transactions require administrative procedures. Signing the contract does not necessarily satisfy those requirements.

Using excessively broad force majeure provisions. Ordinary commercial risks should not be confused with statutory force majeure.

Assuming liquidated damages are automatically enforceable in full. Chinese courts and arbitration institutions may adjust an agreed amount under the applicable legal standards.

Neglecting evidence. A party may have a strong contractual position but struggle to establish its claim if it has not preserved correspondence, payment records, delivery documents and other evidence.

15. Frequently Asked Questions

1. What law governs commercial contracts in China?

The principal framework is Book Three of the Civil Code, effective from 1 January 2021. Specialised legislation, judicial interpretations and applicable international conventions may also govern particular transactions.

2. Can a foreign company enter into a contract with a Chinese company?

Yes. Foreign enterprises may enter into commercial agreements with Chinese companies, subject to applicable contract, investment, regulatory and sector-specific requirements.

3. Must a commercial contract be written?

Not every contract must be written. Chinese law generally recognises written, oral and other legally permitted forms. However, written agreements are strongly preferable for international commercial transactions, and certain contracts are subject to special formal requirements.

4. Are electronic contracts legally recognised in China?

Yes. The Civil Code recognises data messages as a form of written contract where the information can be tangibly expressed and retrieved. Electronic signatures may also have legal effect under the Electronic Signature Law.

5. Does a contract become valid only when a company seal is affixed?

Not necessarily. The legal effect depends on the applicable rules, the authority of the signatory, the parties’ intentions and the circumstances of execution. A company seal should not be treated as a universal substitute for verifying authority.

6. Can the parties choose English law for a contract with a Chinese company?

They may do so where the contract qualifies as a foreign-related civil relationship and the choice is permitted under Chinese conflict-of-law rules. Mandatory Chinese provisions may still apply.

7. Can two Chinese companies choose foreign law for a purely domestic contract?

Generally, no. A purely domestic contract without a foreign-related element cannot ordinarily be made subject to foreign law simply by inserting a choice-of-law clause.

8. Does Chinese law apply automatically to every contract performed in China?

Not necessarily. The applicable law must be determined under the relevant conflict-of-law rules. However, mandatory Chinese provisions may apply directly, and certain transactions are subject to special statutory rules.

9. What is the CISG?

The CISG is the United Nations Convention on Contracts for the International Sale of Goods. It establishes uniform rules for qualifying international sales of goods, including contract formation, delivery, payment and remedies for breach.

10. Does the CISG apply to sales involving Chinese companies?

It may apply where the parties have their relevant places of business in different CISG contracting states, subject to the Convention’s scope, exclusions and applicable reservations.

11. Can the parties exclude the CISG?

Yes. Article 6 permits parties to exclude the Convention or modify the effect of most of its provisions. The intention should be expressed clearly.

12. What happens if a contract violates a mandatory legal provision?

The contract may be invalid under Article 153 of the Civil Code, but not every regulatory violation automatically produces invalidity. The purpose and nature of the mandatory provision and the applicable judicial interpretation must be considered.

13. Can a contract be valid even if an administrative approval is still required?

A contract may be formed before the required approval is obtained, but the absence of approval may affect its effectiveness or the ability to enforce its principal obligations. The exact consequences depend on the applicable law.

14. Are letters of intent legally binding?

Some are, and others are not. Their legal effect depends on their content and the parties’ intentions. A document may create an enforceable preliminary obligation even if it is called a memorandum of understanding or letter of intent.

15. Can a Chinese company refuse to perform because the contract has become unprofitable?

A decline in profitability does not automatically justify non-performance. A party may seek relief under the statutory doctrine of change of circumstances only where the relevant legal conditions are satisfied.

16. What is force majeure under Chinese law?

Force majeure refers to objective circumstances that are unforeseeable, unavoidable and insurmountable. Its legal effect depends on the circumstances, the impact on performance and compliance with notification and evidentiary obligations.

17. Can the parties agree on liquidated damages?

Yes. Article 585 of the Civil Code recognises agreed liquidated damages. However, a court or arbitration institution may adjust the amount where the statutory conditions are met.

18. Can a foreign business demand specific performance?

It may seek continued performance where the Civil Code permits it. However, specific performance is not available in every circumstance, particularly where performance is impossible or legally unsuitable.

19. What is the ordinary limitation period for contractual claims?

The general limitation period is three years under Article 188 of the Civil Code, calculated according to the statutory rules. Special provisions may apply to particular claims.

20. Can commercial disputes be resolved through arbitration in China?

Yes. Commercial parties may agree to arbitration where the agreement satisfies the applicable legal requirements. The clause should identify the institution and procedural arrangements clearly.

21. Can a foreign arbitral award be enforced in China?

Qualifying foreign arbitral awards may be recognised and enforced under the New York Convention and applicable Chinese procedural law. Recognition and enforcement remain subject to the relevant statutory grounds for refusal.

22. Are foreign court judgments automatically enforceable in China?

No. Recognition and enforcement depend on Chinese procedural law, applicable treaties or arrangements and the relevant statutory conditions.

23. Can a Chinese company transfer its contractual obligations to another company?

The transfer of contractual obligations generally requires the creditor’s consent. The transfer of rights and obligations together also requires consideration of the applicable statutory requirements.

24. What happens if the contract does not specify a particular term?

The parties may negotiate a supplementary agreement. If they cannot agree, the Civil Code provides statutory rules for determining certain missing contractual terms.

25. Why should foreign businesses pay particular attention to the Chinese version of a contract?

A Chinese version may be important in negotiations, performance and proceedings before Chinese institutions. Where the contract is bilingual, the parties should specify which language prevails and ensure that the translations are accurate.

16. Authoritative Legal Sources and Further Reading

1. Civil Code of the People’s Republic of China (2020). The principal legislation governing contracts, including formation, validity, performance, interpretation, modification, termination and liability for breach.
   State Council of the People’s Republic of China – Civil Code
2. Supreme People’s Court Interpretation on Several Issues Concerning the Application of the General Provisions of the Contract Part of the Civil Code, effective 5 December 2023. This judicial interpretation clarifies the rules governing contract formation, preliminary agreements, standard terms, validity, representation and remedies.
   Ministry of Commerce – Full Text of the Interpretation (Chinese)
3. Law of the People’s Republic of China on the Application of Laws to Foreign-Related Civil Relations. This legislation establishes the conflict-of-law framework for foreign-related contracts and other civil relationships.
   Supreme People’s Court – English Text
4. Electronic Signature Law of the People’s Republic of China. This legislation establishes the legal framework for electronic signatures and electronic documents.
   National People’s Congress – Laws and Regulations
5. United Nations Convention on Contracts for the International Sale of Goods (CISG). The international convention governing qualifying cross-border sales of goods.
   UNCITRAL – CISG Text and Explanatory Materials
6. UNCITRAL – Status of the CISG. The official status table identifies the states that are parties to the Convention and the dates on which it entered into force for them.
   UNCITRAL – CISG Status
7. United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). The international framework for recognition and enforcement of qualifying foreign arbitral awards.
   UNCITRAL – New York Convention
8. Commercial Contracts 2026 – China, Chambers and Partners. A contemporary professional overview of Chinese commercial contract law, applicable legislation and issues arising in commercial practice.
   Chambers and Partners – China Commercial Contracts 2026
9. Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of the Law of the People’s Republic of China on the Application of Laws to Foreign-Related Civil Relations (II). This judicial interpretation addresses the ascertainment and application of foreign law in foreign-related civil and commercial cases.
   Library of Congress – China: Foreign Law Ascertainment Rules

Conclusion

Chinese contract law provides a comprehensive legal framework for commercial relationships involving domestic and foreign enterprises. Its central source, Book Three of the Civil Code, regulates the formation, validity, interpretation, performance and termination of agreements, while specialised legislation and judicial interpretations address particular transactions and practical problems.

For foreign businesses, the most important lesson is that contractual enforceability depends on more than the existence of a signed document. The identity of the parties, the authority of the signatories, the genuineness of consent, mandatory legal requirements, the precision of contractual terms and the actual conduct of the parties may all influence the legal consequences of an agreement.

International contracts introduce further questions. The parties must determine whether the relationship is foreign-related, whether a choice of governing law is permitted, whether mandatory Chinese rules remain applicable and whether the CISG governs an international sale of goods. Dispute-resolution clauses should also be drafted with attention to the location of assets and the practical recognition and enforcement of judgments or arbitral awards.

A carefully drafted commercial agreement should therefore address the transaction as a whole. It should identify the contracting entities, define their obligations, establish clear payment and delivery arrangements, regulate intellectual property and confidentiality, specify the governing law and provide an effective mechanism for resolving disputes.

For foreign enterprises operating in or trading with China, contractual precision is not simply a matter of professional drafting. It is a central element of commercial risk management and a necessary foundation for stable, enforceable and sustainable business relationships.

Educational note: This article provides general information about Chinese contract law for international readers. It is not legal advice concerning a particular transaction or dispute. The application of Chinese law may depend on the nature of the contract, the parties’ status, the relevant sector and the circumstances of performance.