Most Australian businesses that bring on a Chinese supplier choose them for good reasons: the price is right, the factory can produce at scale, and the turnaround is fast. China is still a strong place to source from, and Shan Lai, who spent 15 years practising law in Beijing, is the first to say so. What trips owners up is not the decision to source from China. It is the assumption that the contract sitting behind that decision works the way an Australian contract would.
It usually does not. And the gap between what owners think they have and what they actually have only shows up when something goes wrong, which is the worst possible time to find out.
This matters even if your supplier has never let you down
Plenty of these arrangements run for years without a hitch. The relationship is good, the goods arrive, everyone is happy. That is exactly why the contract never gets a second look.
The problem is that a contract earns its keep on the one day things go wrong: a shipment fails quality, a price is disputed, your design turns up on a competitor’s product. On that day, the question is not how good the relationship was. It is what you can actually enforce. We are seeing more owners discover, at that point, that the answer is “less than I thought”.
The 5 terms that actually decide it
1. Where a dispute is decided, and under whose law
This is the one Australian owners get wrong most often, and it is the one Shan puts first. Owners spend their energy arguing for Australian law to apply, and miss the more important question of where a dispute would actually be heard and whether any decision could be enforced.
An Australian court judgment is, in practical terms, very hard to enforce in China, because the two countries have no treaty requiring each other’s courts to recognise judgments. The fix is arbitration. Australia and China are both parties to the New York Convention, so an arbitral award can be enforced in China far more easily than a court judgment. A neutral venue like Singapore is one both sides are usually comfortable with. (We go deeper on this in a separate piece on enforcement.)
“It’s all very good to have an Australian law contract that says any dispute goes to an Australian court, and then you get a judgment. Unfortunately that judgment is, at best, academic. China doesn’t recognise a foreign judgment unless there’s a bilateral treaty, and Australia and China don’t have one.” – Shan Lai, Special Counsel
2. Payment structured so you keep your bargaining power
Once you have paid in full, your negotiating power drops away. So the principle is simple: hold something back. Structured payments, with a slice retained until the goods arrive and you have checked them, keep the supplier focused right through to shipment. Where owners get it wrong is the detail – how much to hold, what triggers each release, and what “checked” actually means in the contract. Get those loose and the retention does not bite when you need it. How much weight you can put on a retention depends on the deal, the supplier, and what is at stake if the order is wrong, which is exactly the kind of thing worth a quick conversation before you sign.
3. Quality spelled out, not left to good faith
Vague quality terms get read in the supplier’s favour. The fix sounds obvious – spell out the specification, and state clearly where the product has to meet an Australian standard – but the value is in how tightly you draw it and what you hang off it. The terms that do the work are the ones tying the spec to an inspection point and to who carries the cost when goods fail. Set those well and the supplier has a reason to get it right the first time. Set them loosely and you are arguing after the shipment has landed. Where the inspection sits, who runs it, and how a failure flows back to the factory all turn on the product and the order, and they are worth getting advice on rather than copying from someone else’s contract.
4. Penalty clauses, which work differently in your favour
Here is one that surprises Australian owners. Under our common law, you cannot enforce a true penalty. You have to frame it as a liquidated damages clause, a genuine pre-estimate of your loss. Chinese contract law has no such restriction. You can agree a penalty for breach. Even where you might not ultimately recover the full amount, a clear penalty puts the supplier on notice and changes how seriously they treat their obligations.
5. Language, and who checks the translation
Bilingual contracts are now normal, and with AI the translation is easy to produce. The risk is what the words mean once translated. Shan has seen the same legal term land differently in Chinese depending on the translator, to the point where a “must” reads as a suggestion. The deal can also specify that both language versions prevail, which sounds odd to Australian ears but is workable in the Chinese system.
The protection here is simple: have someone who reads both languages and understands the law check that the two versions actually say the same thing, and explain to you what you are signing. AI can draft the translation. It cannot tell you that the Chinese version actually says something softer than the English. A bilingual lawyer can.
What changed, and why this is a 2026 question
This has moved up the list for a reason. China’s labour costs have risen as labour law there has tightened, so the price gap that made the decision easy is narrower than it was. Owners are reviewing suppliers, switching factories, and adding new ones in China and elsewhere. Every one of those moves is a new contract, signed at speed, often on the supplier’s paper. That is precisely when the terms above get skipped.
What this is worth to you
A weak contract rarely announces itself. It sits unnoticed until a shipment fails or a price is disputed, and then the cost is not just the bad order. It is the money you cannot recover, the customers you let down while you scramble for a replacement, and the design you cannot stop a competitor using. Getting the 5 terms above right, before you sign, is a small fraction of what one bad outcome costs.
If you already have a Chinese supplier and have never had the contract looked at, the single thing worth checking this week is the dispute clause: where a dispute is decided, and whether any decision could actually be enforced. If that is wrong, the rest of the contract is hard to rely on.
What to do next
The cheapest time to get a China supply contract right is before you sign it. Two ways to take it further: download our free checklist, Buying from, selling to, or manufacturing in China: the legal checklist every Australian business needs, and run your own contract against it, or book a free call with our legal team and we will tell you where the gaps are.
If you are about to sign with a supplier: let us review and negotiate the contract before it is locked in, while the terms are still open. This is the cheapest moment to act and the easiest place to fix a problem.
If you already have a Chinese supplier: book a review of that contract, so you know what you can actually enforce before a shipment goes wrong. Shan and her team do this regularly and can tell you quickly where you stand.
If you have several supply contracts: a legal health check across them flags the ones carrying the most risk, so you know which to fix first.
