How to approach a supply or manufacturing contract with a Mainland China party

A supply or manufacturing arrangement with a counterparty in the Mainland looks routine until the relationship breaks down. At that point, two questions surface immediately: which law governs the dispute, and where can an award or judgment actually be enforced? For international groups using Hong Kong as a hub, those questions have concrete, workable answers – but only if the contract was built with the cross-border interface in mind from the outset.

A supply or manufacturing contract with a Mainland China party requires deliberate choices on governing law, dispute forum, and the operational clauses that govern the day-two reality – quality, delivery, IP, and termination. The cross-border interface between Hong Kong and the Mainland is now governed by the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645), in force since 29 January 2024, and by the longstanding Mainland–Hong Kong mutual enforcement arrangements for arbitral awards. Getting the forum clause right at the drafting stage is the single most consequential decision a contracting party makes.

This guide walks through the decision sequence in order: the preliminary choices before a word is drafted, the clause-by-clause build, the common errors, and a short checklist for sign-off. Each step carries a gate – a question the parties must answer before moving to the next.

Why does the Hong Kong – Mainland China interface matter for this contract?

The Mainland and Hong Kong operate as separate legal systems within one country. Contract law, procedural rules, enforcement mechanisms, and the treatment of foreign judgments all differ across that boundary. For a buyer or manufacturer based outside the Mainland, Hong Kong is typically the commercial hub: the holding entity, the bank accounts, and the counsel all sit in Hong Kong. The Mainland party manufactures, supplies, or processes goods on the other side.

That structural split creates a practical problem. A judgment from a Mainland people's court was, historically, difficult to recognise in Hong Kong. A judgment from a Hong Kong court was equally difficult to execute in the Mainland against assets held there. The position changed substantially when Cap. 645 came into force on 29 January 2024. Effective Mainland judgments in civil and commercial matters – including money judgments and, in certain circumstances, non-monetary relief – can now be registered with the Court of First Instance here without re-litigating the merits. The same corridor runs in the other direction.

Arbitral awards have their own, older track. The Mainland–Hong Kong mutual enforcement arrangements – in place since 1999 and supplemented in 2020 – allow arbitral awards from Hong Kong-seated proceedings to be enforced in Mainland courts, and vice versa. Simultaneous enforcement applications in both jurisdictions have been permitted since the 2021 amendment to those arrangements. For most supply and manufacturing contracts, that makes a Hong Kong-seated arbitration the most predictable enforcement route across the boundary.

Understanding which track your contract sits on is not an academic exercise. It determines where you can freeze assets before a hearing, how quickly enforcement proceeds after an award, and whether your counterparty's operating entity in the Mainland is actually reachable.

Step one: Clarify the commercial and structural picture before drafting begins

Before a term sheet is prepared, in-house counsel should map four things. First, where are the counterparty's assets held – in the Mainland operating entity, in a holding vehicle above it, or both? Second, what is the practical value of an award if enforcement runs only against Mainland-registered assets? Third, does your group's holding entity sit in Hong Kong, the BVI, the Cayman Islands, or another offshore centre – and does that affect where the contract is signed? Fourth, is there an existing group relationship (a joint venture, a distribution agreement, a shareholder arrangement) that will affect the interpretation of this contract?

The answers to these questions determine the contract strategy. A manufacturing agreement where the Mainland party holds all assets locally calls for a different forum clause than one where the counterparty has an offshore holding entity with assets reachable through Hong Kong courts. Neither structure is inherently better; both are workable. But they call for different documents.

Gate one: confirm the counterparty's corporate structure and the location of its principal assets before the governing-law and forum discussion begins.

In our cross-border practice, we regularly see deals stall at execution because the asset picture on the Mainland side was never properly understood. The contract is drafted around assumptions that turn out to be wrong, and the forum clause cannot then be renegotiated without leverage.

Step two: Choose governing law and dispute forum – the most consequential clause in the document

The governing-law clause and the forum clause are, together, the most consequential provisions in any cross-border supply or manufacturing agreement. They determine not only how the contract is interpreted in a dispute, but which institution handles the claim and which enforcement corridor is available at the end.

Three options are commonly considered for Mainland-facing commercial contracts:

• Hong Kong governing law, Hong Kong-seated arbitration – the most common structure for international groups. Hong Kong law is a mature common-law system. The Arbitration Ordinance (Cap. 609), modelled on the UNCITRAL Model Law, provides a well-tested statutory base. Awards from HKIAC-administered proceedings can be enforced in the Mainland under the mutual enforcement arrangements. This combination keeps the substantive and procedural rules in the same legal system and gives clear access to both enforcement corridors.
• PRC governing law, arbitration before a Mainland-recognised institution – sometimes preferred by Mainland state-owned enterprises or where the contract has its centre of gravity firmly in the Mainland. An internationally recognised Mainland arbitration institution can work for international parties, but the governing law will be interpreted by a tribunal applying PRC contract and commercial law, which operates differently in a number of respects from common-law jurisdictions.
• Split clauses (e.g., international law institute, foreign governing law) – occasionally proposed; generally to be avoided. A governing-law clause that refers to a body of law the relevant tribunal cannot straightforwardly apply creates interpretive uncertainty. More practically, it complicates enforcement.

For most international groups, Option 1 is the starting point. The cross-border enforcement corridor is tested and documented. The Arbitration Ordinance provides well-understood emergency-arbitrator and interim-measures mechanisms. The HKIAC Administered Arbitration Rules – in force in their 2024 edition, effective 1 June 2024 – provide a set of procedural rules that are commercially familiar to parties across Asia, Europe, and the Americas.

One specific point on interim measures: the Mainland–HKSAR Arrangement on Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings, in force since 1 October 2019, allows a party to a Hong Kong-seated arbitration to seek interim measures from Mainland courts – asset preservation, evidence preservation, conduct orders – before or during the arbitration. That capacity to reach Mainland assets without first completing the arbitration is a structural advantage that Hong Kong-seated arbitration holds over most other forums for this type of contract.

Gate two: obtain sign-off from both legal and commercial leadership on the governing-law and forum clause before any other substantive provisions are agreed. These are not points to defer to late-stage negotiation.

How does the day-two operating reality translate into contract clauses?

The governing-law and forum discussion dominates the structuring phase, but the day-two operating clauses – quality, delivery, intellectual property, and termination – are where most supply and manufacturing contracts actually break down. A well-structured forum clause is irrelevant if the substantive obligations are vague or unenforceable.

Quality and inspection: define the applicable standards by reference to a specific technical specification, not a general description. Where the goods will be inspected, by whom, and under what timeline should be expressed in calendar days. A clause that refers to "industry standards" without specifying which standard, at what stage of production, and who bears the cost of re-inspection is a dispute in waiting.

Delivery and title: state the point at which title and risk pass, and the Incoterms rule (if used) by reference to the current Incoterms edition. Cross-border supply contracts regularly produce disputes about whether a claim is against the manufacturer or the carrier, and whether the loss occurred before or after the contractual delivery point. The answer must be in the document.

Intellectual property: a supply or manufacturing arrangement with a Mainland party must address ownership of moulds, tooling, designs, and any developed improvements to the buyer's IP. Where the manufacturing process involves the buyer's technology, a confidentiality and IP-assignment clause is not optional. PRC law has its own IP regime; a clause that is effective under Hong Kong law may need to be accompanied by a separate IP protection filing in the Mainland.

Termination and exit: define the grounds for termination, the notice period in calendar days, and the consequences for open purchase orders and goods in production or in transit. A termination clause that is silent on goods already committed to a production run will create a damages claim on exit. The clause should also address what happens to tooling, designs, and raw materials held by the manufacturer at the termination date.

Gate three: each operative clause should be checked against both governing law and the practical reality of enforcement in the Mainland. A term that is enforceable under Hong Kong law but unenforceable or unrecognised under PRC law may have reduced practical value if the only assets available to satisfy a judgment sit in the Mainland.

What do foreign counsel most often get wrong in Mainland supply contracts?

Three errors appear consistently in Mainland-facing supply and manufacturing agreements that reach our desk for review or in dispute.

The first is treating the forum clause as interchangeable with a jurisdiction clause in a purely domestic contract. A clause that simply says "disputes shall be referred to the courts of Hong Kong" does not, by itself, give the contracting party access to the enforcement corridors described above. The Cap. 645 regime has specific conditions for recognition; a poorly drafted clause may not satisfy them. And court proceedings produce judgments, not arbitral awards – which means the 1999 and 2020 Arrangement track for arbitral awards is not available. The choice between arbitration and litigation is a real one, and it carries different enforcement implications.

The second error is signing with the trading entity rather than the manufacturing entity. Where a Mainland group operates through a separate manufacturing subsidiary, the contracting entity may not itself own the plant, equipment, or inventory. An award against the trading entity, enforceable only against its assets, may be substantially less valuable than anticipated. Identifying the correct party – and obtaining appropriate group-level undertakings if needed – is a due-diligence question, not a legal technicality.

The third error is omitting a language clause and assuming the English text controls. In a contract subject to Hong Kong governing law, the English text will ordinarily be the authoritative version. But if the day-to-day relationship is conducted in Mandarin, and the Mainland party signs a Chinese-language version that diverges from the English original, the discrepancy creates real risk in enforcement. A carefully drafted language clause – specifying which text prevails and how translation disputes are resolved – is a short, practical provision that avoids a significant procedural complication.

A European trading group with a BVI holding entity signed a manufacturing agreement with a Mainland supplier in mid-2025. The contract was governed by English law – neither Hong Kong nor PRC – with disputes referred to ICC arbitration seated in a European city. When the relationship broke down and the buyer sought to enforce an interim-measures order against the supplier's Mainland assets, no mechanism was available: the 1 October 2019 Arrangement applies only to Hong Kong-seated arbitrations. The enforcement position was substantially weaker than management had anticipated, and re-negotiating the forum during a live dispute was not a realistic option. In our cross-border practice, that fact pattern recurs with variations.

Is there a cross-border enforcement structure that works in both directions?

A well-structured supply or manufacturing contract should give both parties a credible enforcement route. That matters commercially: a counterparty that believes it cannot enforce against you has less incentive to perform. Mutual enforceability is a feature, not a concession.

For a Hong Kong-seated arbitration governed by Hong Kong law, the enforcement position runs as follows. Awards from HKIAC proceedings can be enforced in the Mainland under the mutual enforcement arrangements. Simultaneous applications in both jurisdictions have been available since the 2021 amendment. Interim measures against Mainland assets can be sought from Mainland courts during the arbitration under the 2019 Arrangement. And in Hong Kong itself, a Mainland judgment – or an HKIAC award made against a Hong Kong or BVI holding entity – is registrable with the Court of First Instance.

The practical implication is that a contract structured this way gives the buyer a route to the supplier's Mainland assets and gives the Mainland supplier a route to the buyer's Hong Kong or offshore assets, all within a single, documented enforcement architecture. That is a different position from the European-seated arbitration scenario described above.

Where a party's assets are primarily outside both the Mainland and Hong Kong – held in the Cayman Islands, the UAE, or elsewhere – the enforcement analysis extends further. The New York Convention applies in Hong Kong; Hong Kong-seated HKIAC awards can be enforced in Convention signatory jurisdictions worldwide. That gives an additional enforcement corridor for assets sitting outside the Mainland–HK bilateral track.

The sequence above describes the standard position. Your matter turns on the documents, the jurisdictions actually engaged, and the order of steps – which is where the route is won or lost. To discuss how these mechanisms apply to your specific contract and counterparty structure, write to us at info@lockhartyip.com.

Decision checklist before the contract is signed

The following questions are the gate checks in sequence. If any answer is "no" or "unclear", that step requires attention before execution.

• Has the counterparty's corporate structure been confirmed, including which entity owns the manufacturing assets?
• Is the contracting entity on the Mainland side the entity that owns the plant, inventory, and operating assets – or is it a trading shell?
• Have governing law (Hong Kong) and dispute forum (Hong Kong-seated arbitration, preferably HKIAC) been agreed in principle by both commercial and legal leadership?
• Does the arbitration clause comply with the conditions necessary to access the Mainland–HK mutual enforcement arrangements and the 2019 Arrangement on interim measures?
• Are quality standards expressed by reference to a specific technical specification, with defined inspection rights and timelines?
• Does the contract specify the point of title and risk transfer, in calendar-day terms?
• Does the IP clause address tooling, moulds, designs, and any improvements developed during the manufacturing relationship?
• Does the termination clause address goods in production, open purchase orders, and tooling held by the manufacturer at the exit date?
• Is there a language clause specifying which text controls, and has a Chinese-language version been reviewed against the English original?
• Has the signing party on each side been confirmed as the entity with legal capacity to bind the group?

This checklist is not exhaustive. Complex arrangements involving licensed technology, bonded warehouses, or tiered supplier structures will require additional provisions. Parties should verify the current regulatory position before relying on the enforcement mechanisms described in this guide.

If an earlier contract, structure, or enforcement attempt produced an adverse or stalled result, a second read can identify the strategic error and the routes still open. Write to info@lockhartyip.com to discuss how the cross-border enforcement architecture applies to your position.

Related practices

Related practices

• Corporate Counsel – cross-border commercial contracts, governance, and entity management for international groups
• Disputes & Arbitration – Hong Kong-seated arbitration, enforcement, and interim measures across the Mainland–HK boundary

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This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.