Selling products to China is legally risky—brands are caught between distributors that abuse IP and e-commerce platforms that impose warranty liability in surprising ways. Distributor relationships need to be structured carefully to prevent dishonesty, lock-in, and even IP theft. Is selling direct to consumers instead a safer bet? Not necessarily. Chinese warranty and product liability regulation is so different from other countries that western companies routinely run into legal mishaps that cause significant financial damage. In this article, we will take a close look at how both distributorship and DTC e-commerce sales work in China and offer best practices and strategies for making good decisions while pursuing local opportunities.
Contents
Distributors: Third Party Risks
International brands entering China sometimes meet potential distributors at trade shows and rush into business relationships with insufficient due diligence or legal advice. This makes you vulnerable to tactics such as the distributor dissolving its entity soon after you make a deal.
A thorough background check on potential distributors cannot be skipped, because it directly influences both the stability of the business relationship and your brand’s market reputation. The review should minimally include the following:
- Marketing Experience and Capabilities: Assess the distributor’s experience and sales capabilities in the relevant industry, including their distribution channels, customer base, and marketing capability.
- Financial Condition and Creditworthiness: Make sure they have enough capital to advertise, buy, and sell products, thereby reducing the risk of cash flow interruptions that could halt brand expansion.
- Licenses and Compliance: Public records will reveal compliance with applicable Chinese laws, including tax, labor, and consumer protection.
- Credibility and Reputation: Industry peers and social media data can identify partners that may act in bad faith.
Distribution Agreement Contracts
Distribution agreements can be executed when a distributor and a brand make a deal. During negotiations, parties often focus on economic terms to get to “yes” quickly, neglecting disputes or termination terms. Ambiguous or omitted terms can disadvantage your brand in a dispute and affect business development in China. For example, a former distributor may retain control over your official e-commerce store account, blocking the replacement distributor’s registration.
Resolving this with the e-commerce sites and the former distributor will be slow and expensive. Or, the previous distributor may exploit lack of effective termination provisions to dump products at low prices, disrupting the market, confusing consumers, and causing significant, lasting damage to the brand.
After selecting a good distributor, you need to consider all potential issues that might arise when doing business and include comprehensive provisions in the distribution agreement. Below, let’s look at frequently overlooked provisions.
Scope of Distribution Rights
The distribution agreement should clearly define the scope of the granted rights, including the territory, distribution channels, exclusivity, and covered products. For example, if the brand owner intends to grant the distributor non-exclusive rights to sell in a specific territory, this must be expressly stated in the agreement. Additionally, the agreement should clearly delineate online and offline sales channels to prevent unauthorized cross-territory sales or unfair competition by the distributor.
Trademark Protection
Trademarks are too important an asset not to protect from infringement. Distribution agreements should include definite trademark protection provisions. International brands in China want to reserve the right to take legal action against trademark and patent infringers, for confidentiality purposes, but distributors are often better positioned to catch infringement at the point of sale.
Therefore, you should empower distributors to report identified infringement by granting them some rights, such as a trademark license or platform filing authorization letter, so they can go after counterfeit goods, trademark infringement, or patent infringement they find on online, and directly report to the platforms, which can then take action such as suspending livestreams, delisting items, or removing infringing products and links.
This approach not only effectively protects the brand but also incentivizes distributors to protect brand rights. The agreement should also require distributors to promptly report any infringement leads they discover to the brand and, on request, take appropriate legal action.
Ownership and Management of Intangible Assets
Distributors may acquire intangible brand assets during distributorship, including market intelligence, customer data, customer avatars, and sales data. They may also set up an official e-commerce store in China, which, while operated under the brand’s name, are typically registered under their own name.
Without explicit rules addressing ownership, a brand might be unable to assert ownership over these assets when you stop doing business, so distribution agreements should clearly define ownership. For example, agreements might grant the brand the right to require store rights transfer, update e-commerce store registration information, and transfer or reasonably share market intelligence and customer data in compliance with applicable law. These provisions help prevent store property right disputes during and after the agreement term, thereby protecting the brand’s long-term interests.
To establish and maintain relationships with e-commerce sites, the brand should also maintain direct communication with the platforms, even if the official e-commerce stores are operated by the distributor, to prevent miscommunication. Reported litigation reveals distributors in China are making fraudulent claims to e-commerce platforms, such as having authorization they never received, and it’s therefore important for the brand to maintain independent communication channels with e-commerce sites.
Clearance Period and Inventory Disposal
Terminating of a distributor usually involves disposing of the remaining inventory. A distribution agreement should define a reasonable clearance period, price, and method. This looks like allowing continued sales but actually protects the brand by enabling it to enforce a retail price floor, halt sales at the end of the clearance period, and decide on disposal of remaining inventory.
Chinese law and judicial precedents do not have any requirements for clearance period. In disputes, courts typically weigh factors such as the type of product, the distributor’s purchasing volume, the typical sales cycle, and the parties’ prior dealings to set a reasonable clearance period. Unless the clearance period is in the agreement, sales can’t be stopped without getting a court order. But court delays can exacerbate disputes with the distributor and harm the brand’s reputation and future sales.
Additionally, the agreement should specify whether sales are permitted through official e-commerce stores or other distribution channels during the clearance period, and how remaining inventory will be handled thereafter. For example, do you buy back inventory at a certain price or require its destruction?
If the distribution agreement is silent, the brand and distributor may actually get stuck negotiating over issues like whether the buyback price should include importing, insurance, customs duties, and warehousing costs. This can affect the product’s remaining shelf life and marketability after buyback.
Reported cases in China show that thorough, reasonable provisions provide contractual basis for the brand to demand buyback, halt sales, or demand destruction of the inventory. You win when your needs are in writing.
Applicable Law and Dispute Resolution
Closely consider the choice of law for the distribution agreement. Many sign agreements without consulting Chinese attorneys, and choose home-country laws, courts or arbitration tribunals they believe better protect their rights. While this choice may feel safer, it rarely works out better. If litigating under Chinese law, the court or tribunal can skip the proceedings on recognition and enforcement of foreign law. That’s because the case happened locally and is enforced locally. Your agreement should use Chinese law and select the dispute resolution forum. In a lawsuit, you’ll be afforded an equitable resolution within a reliable legal framework.
CBL’s network of expert lawyers provides affordable, effective legal services for China, and can help you prepare a distribution agreement that protects your interests.
Direct to Consumer: Warranty Risks
Selling direct to consumer is often preferred as a means to control pricing, sales channels, and customer relationships, minimizing dependence on local partners. Nonetheless, selling directly to consumers in China is more complicated than other jurisdictions and e-commerce platforms. Consider the following when deciding what market-entry approach to use.
Product Restrictions. Products can only be sold if on the government whitelist.[1][2] While items on the whitelist are generally exempt from import licenses, products subject to first-import approval remain may require an application. A customs attorney can check eligibility and licensing requirements in advance to avoid unexpected delays.
Delivery. Some platforms like Tmall Global offer fulfillment services similar to those offered by international e-commerce sites, but others expect sellers to arrange for delivery. You are allowed to ship across borders to China but note that most platforms require returns be processed in China. An alternative is to use bonded warehouses in China, which involves operational complexity and legal compliance.
Customs Registration. Government filings are needed if making direct to consumer (DTC) sales on e-commerce platforms, logistics service providers, and payment service providers. If doing DTC e-commerce, your trade attorney will help you appoint a local agent to register and file on their behalf; the attorney will check to see agents are registered and in good legal standing.[3]
Platform Registration and Fees
Common Chinese e-commerce platforms include Tmall Global and JD Worldwide. Registration for these international e-commerce platforms can be challenging due to both stringent platform requirements and compliance with China’s import/export regime.
Document requirements vary by platform but generally include copies of your company’s registration documents, registered trademarks, and other proof that you are in control of or licensed to sell your products. Product-level document requirements depend on the platform and product category, and include certificate of origin and quality inspection reports, as well as Chinese-language product labels, descriptions, and customer service.[4][5]
Security deposits are—surprising to many businesspeople—likely to be demanded by Chinese e-commerce platforms. These are held to ensure compliance with platform rules and cover potential penalties or damages under the platform service agreement. Deposits vary by platform, store, and product category, and generally range from RMB 50,000 to RMB 150,000 (roughly $7,300 to $22,000) for major platforms like Tmall Global and JD Worldwide but can be as high as RMB 500,000 (roughly $74,000) for certain product categories. Deposits are charged as part of the store registration process and refunded once the seller ends their contract and settles obligations.
The security deposits can be extremely high because many other international sellers mishandled China legal obligations and did incur these liabilities, in some cases, the platforms acted as insurers unpaid claims. For example, angry customers routinely successfully claim treble damages from sellers. Therefore, the deposit risk is actually losing the entire deposit due to mishaps arising from not having well designed legal documents and policies specific to China. A broader business risk is large scale online backlash that damages your brand and floods product pages with negative reviews.
By contrast, a distributor may not incur the cost of posting a security deposit to sell your products in China. There are many local-only sales channels used locally, and deposits are not required because the seller’s assets in China may be auctioned to pay liabilities, and courts enforce directly against managers as individuals. (see related article)
In addition to security deposits, Chinese e-commerce platform contracts impose annual service fees, and sales commissions. Service fees are generally between 30,000 RMB and 60,000 RMB (roughly $4,400 to $8,800) per year, and sales commissions are typically 2-6% of each transaction. International platforms like JD Worldwide also charge an additional transaction processing fee of around 1% per sale.[8][9]
Conclusion
Selling products to China involves a mix of legal risks unique to this market. In this article, we learned that a very specific contract is needed to control distributors and align their activities with your business interests. Direct to consumer sales are also permitted, but failing to localize business practices for the China market can result in large, unexpected legal liability.
In either case, these risks can be navigated with expert advice and customized legal documents for local markets. CBL’s managed legal services can make it easier for you to get the support you need to successfully enter the Chinese market.
Further Reading
Before talking to a distributor or e-commerce platform, you need to have a plan for your trademarks.
For a general overview of this topic, see also CBL’s China Foreign Investment Law FAQ.
FOOTNOTES
[1] Cross-Border E-Commerce Product Whitelist, (跨境电子商务零售进口商品清单), (Ministry of Finance, Apr.15, 2016), (in Mandarin)
[2] Changes to Cross-Border E-Commerce Product Whitelist, (跨境电子商务零售进口商品清单调整表), (Ministry of Finance, Jan. 28, 2022), (in Mandarin)
[3] Official Customs Filing Guide, (“跨境电子商务监管”政务服务事项办事指南), (Administration of Customs, Jan 1, 2019), (in Mandarin)
[4] Tmall Seller Eligibility Standards, (天猫国际商家资质标准), (Tmall, May 6, 2026), (in Mandarin)
[5] JD Worldwide Seller Eligibility Standards, (京东全球购开放平台店铺资质管理规范), (JD Worldwide, Sept. 22, 2025), (in Mandarin)
[6] JD Worldwide Application Process, (京东全球购入驻流程), (JD Worldwide, May 7, 2026), (in Mandarin)
[7] Tmall Global Security Deposit Requirements, (天猫国际平台保证金规则), (Tmall Global, May 6, 2026), (in Mandarin)
[8] JD Worldwide Security Deposit and Fee Standards, (京东全球购开放平台各类目资费标准), (JD Worldwide, Feb 22, 2026), (in Mandarin)
[9] Tmall Software Service Fee Rules, (天猫国际商户基础软件服务费规则), (Tmall Global, Apr. 1, 2025), (in Mandarin)