Legal Risks in Signing International Trade Contracts with Chinese Exporters: Key Considerations for Foreign Buyers

When engaging in international trade with Chinese exporters, foreign buyers must pay close attention to the legal validity of contracts, particularly the qualifications of the signatory. While a Chinese company may be legally registered, the person signing the contract may not necessarily have the authority to bind the company. Failure to verify the signatory’s eligibility could render the contract unenforceable, exposing buyers to significant risks. Below are critical legal considerations to mitigate such risks.

I. Verify the Signatory’s Authority

A contract is legally binding only if signed by an authorized representative. In China, the legal representative (typically the chairman or general manager listed on the business license) has inherent authority to sign contracts. However, many transactions involve authorized agents, whose signing power must be carefully scrutinized.

Key Steps for Verification:

(1)  Request Legal Documentation: Demand the company’s business license to confirm the legal representative’s identity.

(2)  Check Authorization Letters: If the signatory is not the legal representative, insist on a written power of attorney issued by the company. This document must:

Be signed by the legal representative or stamped with the company’s official seal.

Clearly state the scope of authority, duration, and specific matters authorized (e.g., signing contracts, negotiating terms).

(3) Beware of Misleading Titles: Do not rely solely on business cards or verbal claims—verify credentials against official records.

II. Confirm the Contracting Entity’s Identity

Some Chinese exporters may misrepresent their corporate structure. For example:

(1) A subsidiary’s representative may claim to act on behalf of the parent company, leveraging the parent’s reputation while avoiding liability.

(2) Parent and subsidiary companies are separate legal entities under Chinese law. If a subsidiary breaches the contract, the parent company cannot be held liable unless explicitly guaranteed.

Protective Measures:

(1) Cross-Check Company Registration: Verify the signatory’s employer through China’s National Enterprise Credit Information Publicity System (信用中国).

(2) Clarify Corporate Affiliations: If the exporter references a “group” or “parent company,” demand written confirmation of the contracting party’s legal status.

Conclusion

To avoid disputes over contract validity, foreign buyers must rigorously assess:

1.   Whether the signatory is the legal representative or holds a valid power of attorney.

2.   Whether the company named in the contract matches the actual contracting party.

Proactive due diligence minimizes the risk of unenforceable agreements and ensures smoother dispute resolution. Consulting a China-focused legal advisor before signing is strongly recommended.