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Ask the Expert: Enquiries on Legal Matters

By EU SME Centre | Press Article      22.11.2022     Tags:

Ask the Expert: Enquiries on Legal Matters

Do you have a question about doing business in China? Have you encountered any issues when dealing with Chinese partners? Would you like to discuss your case and options available with our experts, free-of-charge? You are in the right place!

China is a very complex market. At one stage or another, every company approaching for the first time or already operating in the Chinese market might encounter challenges or issues that require ad hoc professional assistance. EU SMEs often lack the resources to navigate through the myriad of regulations, rules and standards in China, their implementation in practice, and thus to understand the full picture. Through email or face-to-face / online meetings with its in-house or external experts, the EU SME Centre offers tailored and confidential technical assistance to any EU SMEs or business organisation in need. Our services are free.

Questions asked typically span across any sector or field, including but not limited to:

In November 2022, our expert team received several enquiries from EU SMEs and business organisations. Some were asked through our Ask-the-Expert platform (https://www.eusmecentre.org.cn/expert); others were asked live during the training we organised on “How to Draft Sales Contracts When Exporting to China”.

Question 1: Our company generally works with electronic contracts from Chinese partners. Is that equal to the original version on paper? Can we have contracts signed electronically?

For any transaction, original contracts – chopped and on paper – are required. Chinese courts or arbitrators will not recognise copies of contracts signed digitally. 

It is true that many companies may choose to proceed with digital contracts only, as shipping fees between the EU and China might be costly. But in case a dispute arises, digital contracts will not be enough: your company will need to prepare and obtain an original, chopped version on paper in order to initiate legal action; the Chinese partner might not be willing to do so at a later stage, especially if they perceive it as being to their disadvantage. 

Question 2: What happens if the company chop used by the Chinese partner is not the official one and your company realises it only after a dispute has arisen? 

Your contract will not be recognised by Chinese courts, as without the official company chop there is no formal evidence of the involvement of the company in question. Your company may provide additional evidence, such as emails or other documentation; but there is the risk that such additional evidence will not be enough to be recognised by Chinese courts, with the consequence that you will be unable to initiate legal action and solve the dispute.

It is therefore vital that you make sure that the chop used by the Chinese company has legal value, by recognising the standardised elements present on Chinese company chops.

Question 3: What are the typical elements of a Chinese chop?

Chinese company stamps have standardised elements which are clearly identifiable:

  1. Circular or oval shape 
  2. Red ink 
  3. Red star in the middle 
  4. Company name written in Chinese characters (usually in the inside of the circle’s lower perimeter; rarely in the middle of the chop replacing the red star)
  5. Occasionally, bilingual chops in Chinese and English might be used; a 13-digit number might also appear, indicating the chop’s registration number with the authorities. 

Company stamps in any other shapes, sizes, colours or languages have no legal value in China. One may argue that other chops – especially those in English – are used to facilitate the foreign partner’s understanding of the stamp; in practice, these are often a strong indicator that the company does not want to disclose its legal information and thus may have something to hide.

Question 4: Several companies may have the same name, thus it might be difficult to link a company to the relevant website. How to know for sure?

The only official name of the company is the one in Chinese: there cannot be companies with the same name. You can verify the official name of the company by asking a copy of their business license, and verifying it through public or private credit platforms. It may be possible that companies share the same name in English, or at least have very similar English names. However, company names in English are not official and have absolutely no legal value in China. You should always ask for the official company name in Chinese: without this, you may not be in a position to enforce your rights in case of commercial disputes (see question 2).

For this reason, when working with a potential Chinese partner, you should always ensure that their official website includes information in Chinese language about its name, registered address and contact. If these information in Chinese are not included on the website, it means that the company has something to hide: this is a red flag for potential scam.

Question 5: In Chinese business culture, "signing a contract often means the beginning of the real negotiation". Does the result of such further negotiation needs to be updated in the existing contract? Through amendments or?

Yes, definitely. Updating the contract based on the progress of the negotiation/cooperation is essential to protect yourself from any potential issues in the future, including disputes. Thus any changes to the original terms of the contract must be stated in writing, and confirmed by both parties; making an amendment to the contract (using company chops) is the best way to do so, as in this way it will become crystal-clear what terms are changed and what the new obligations are. This will also constitute evidence to be presented eventually as part of dispute resolutions.

How does Ask-the-Expert work?

There are two main ways to contact us for technical assistance:

  1. By submitting the dedicated form through our Ask-the-expert page, after you have registered for free and logged in on our website
  2. For urgent matters only, you may contact us directly via email to info@eusmecentre.org.cn, while completing the free registration procedure.

Our experts generally will answer you within 3 business days. You may also request a one-to-one call, by sending us an overview of the problem in advance and questions to ask.

We also invite you to scroll through our FAQs page and to complete the Self-Diagnosis Tool – the answer to your questions, and/or additional insights, may already be there!

IMPORTANT: Please note that the EU SME Centre provides first-level technical assistance only, and nothing will ever be charged. We do not get directly involved in paperwork or ad hoc market reports for individual companies, but we might be able to recommend you to third-party service providers who offer such paid services.

More on the topics covered this month

Drafting Sales Contracts: You may be interested in our Guidelines on Drafting Sales Contracts When Exporting to China.

Due diligence when purchasing from China: Check our article on Simple Steps to Minimise Risks of Being Scammed.

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