Matter note: a supply or manufacturing Mainland

A supply or manufacturing contract with a Mainland China counterparty presents a set of cross-border legal questions that go well beyond the commercial terms. The governing-law clause, the forum election, and the day-two operating reality – what happens when a dispute actually arises – must be engineered before signing, not after delivery has begun. Under the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645), which came into force on 29 January 2024, Hong Kong-seated enforcement of Mainland judgments became materially more accessible. That change reconfigures the options available to a foreign principal entering a Mainland-facing supply or manufacturing arrangement.

This matter note sets out an anonymised cross-border situation handled on our desk. It describes the constraint the client faced, the route chosen, the sequence of steps, and the lesson that transfers to comparable arrangements. No client-identifying information has been included. Names, industries, and specific commercial terms have been changed or omitted.

What was the situation and why did the existing contract fall short?

A mid-market European distribution group had been sourcing finished components from a Mainland China manufacturer for several years. The original agreement had been drafted informally, under time pressure, by in-house counsel working from a template designed for European supplier relationships. The governing-law clause nominated the law of a European jurisdiction. The dispute-resolution clause provided for proceedings before the courts of that same jurisdiction.

On the surface, the arrangement appeared workable. In practice, it was inoperable the moment any serious dispute arose. A European court judgment against a Mainland Chinese manufacturer – holding assets exclusively within the People's Republic – carried no enforceable weight in the Mainland courts. The route to the assets simply did not exist. The template clause that seemed neutral on paper was, in the context of this relationship, functionally empty.

When a quality dispute emerged over a significant run of goods – the client's own downstream contractual commitments were already engaged – the structural problem became apparent. The client could litigate in Europe. The result would be a judgment that could not follow the manufacturer's assets. The window for renegotiation was narrow. Orders had been placed for the next quarter.

This is the constraint our desk sees in a surprisingly high proportion of Mainland-facing supply arrangements reviewed by foreign counsel for the first time after a problem has already surfaced. The commercial terms are often reasonable. The legal infrastructure is built for a geography that does not correspond to the asset reality.

What was the cross-border problem, and which instruments were in play?

The cross-border problem had two layers. The first was immediate: how to assert the client's position in the live quality dispute. The second was structural: how to rewrite the agreement so that future disputes could be handled through a route that actually reached the other party's assets and operations.

For the immediate layer, the operative question was whether any mechanism could accelerate leverage against the Mainland party. Hong Kong-seated arbitration was already on the table as a general preference, but the existing contract did not provide for it. Without a valid arbitration agreement, the 1999 Arrangement for the mutual enforcement of arbitral awards between Hong Kong and the Mainland – supplemented in 2020 and further amended – could not be engaged. The interim-measures mechanism under the arrangement effective since 1 October 2019, which permits a Hong Kong-seated arbitral tribunal to seek Mainland court interim relief, was similarly unavailable without a qualifying agreement.

For the structural layer, the choices were: Mainland-law governing clause with Mainland court jurisdiction; Hong Kong-law governing clause with Hong Kong-seated arbitration; or a hybrid approach preserving Hong Kong law while connecting to a recognised enforcement route into the Mainland. Each had distinct implications for the client's operating team, its Mainland counterparty, and the realistic cost of running a dispute through each forum.

A Mainland court judgment in favour of the European client – obtained in a Mainland forum with Mainland-law governance – would be executable against Mainland assets directly. But the client had no appetite for litigating in Mainland courts, and its Chinese counterparty had little incentive to agree to that arrangement, since a Mainland court would apply Mainland law with which the Mainland party was far more comfortable.

Hong Kong-seated arbitration under the HKIAC Administered Arbitration Rules, with Hong Kong as the governing law or with PRC law as an expressly identified governing law, offered a different balance. An award from a Hong Kong-seated tribunal can be enforced in the Mainland through the mutual enforcement arrangements. The mechanism is well-tested and, since the 2020 Supplemental Arrangement, permits simultaneous enforcement applications in both jurisdictions. For a European group, the Hong Kong forum also offered a common-law system, English as an official court and arbitral language, and procedural rules closer to its own experience.

The Mainland Judgments Ordinance (Cap. 645), in force from 29 January 2024, was relevant to the broader structuring analysis. It removed the old requirement that the original court have exclusive jurisdiction by agreement, replacing it with a connection-based test. But for this matter, the primary enforcement route was arbitral, not judgment-based – so the Ordinance informed the strategic background rather than the immediate tactic.

How did the sequence unfold, and where was the turning point?

The immediate dispute was addressed first. Without a qualifying arbitration agreement, the client's team assessed its practical leverage. The Mainland manufacturer was not without commercial incentive to resolve: it supplied other international customers, had third-party certifications it needed to maintain, and the value of the ongoing relationship exceeded the disputed sum. Our desk advised the client to formalise the quality claim in writing, document the contractual basis precisely, and then open a structured negotiation rather than threaten litigation under a forum clause both parties understood was difficult to execute.

That approach worked for the immediate matter. The dispute settled on commercial terms within the quarter. But the settlement itself was documented as part of a broader contract renegotiation – and that renegotiation was where the structural work was done.

The new agreement contained four changes that materially altered the legal infrastructure of the relationship. First, the governing law was changed to Hong Kong law. This gave the client a system it could instruct on directly, with counsel already on the file. Second, the dispute-resolution clause provided for HKIAC-administered arbitration seated in Hong Kong, with English as the language of the proceedings. Third, the contract included an express agreement on interim relief, activating the 2019 interim-measures arrangement for any future dispute. Fourth, the notice and payment architecture was restructured to run through a Hong Kong entity on the client's side – a step that gave the relationship a Hong Kong legal footprint beyond the governing-law clause alone.

The turning point was the renegotiation window opened by the settlement. In our cross-border practice, this is a pattern worth noting. A live dispute – even one that settles – is often the moment when a counterparty becomes willing to discuss contract architecture. Before a problem arises, there is rarely commercial urgency to revisit a clause that appears to function. After a problem has been resolved, both parties have demonstrated a preference for the relationship continuing. That is often the only window in which the structural conversation is genuinely open.

The Mainland manufacturer accepted the new terms. HKIAC arbitration was familiar territory in its industry. Hong Kong law carried no material disadvantage on the substantive terms that governed the supply relationship. The interim-measures provision was of theoretical concern to the manufacturer but, in context, no more threatening than the existing – and unenforceable – European court clause it was replacing.

What was the outcome, and what does it transfer to comparable situations?

The immediate dispute was resolved. The structural problem was corrected. The ongoing supply relationship continued on a new contractual footing that, for the first time, connected the governing law, the forum, and the enforcement route into a coherent sequence.

Several observations from this matter transfer directly to comparable arrangements.

The first is the governing-law mismatch. A European or common-law governing clause combined with a non-Mainland forum does not become enforceable simply because both parties sign it. Enforceability is a function of where the assets sit and which enforcement routes exist between that jurisdiction and the forum chosen. In Mainland-facing supply arrangements, that calculation runs through Hong Kong, through the mutual enforcement arrangements, and – for judgment-based routes – through the Cap. 645 Ordinance regime. Working backwards from the asset location to the contract clause is the right order of analysis.

The second is the interim-measures gap. Many foreign principals entering Mainland supply arrangements are unaware that the ability to seek interim relief against a Mainland counterparty – freezing assets, preserving evidence, restraining conduct – now depends on having a qualifying Hong Kong-seated arbitration agreement. Without it, that mechanism is unavailable. With it, and with the agreement in the form required by the 2019 Arrangement, a Hong Kong-seated tribunal can request a Mainland court to grant interim measures before or during the arbitration. That is a material difference in leverage.

The third is timing. Contract architecture is most efficiently addressed before signing, or during a renegotiation window that a live event creates. Once a dispute is running under a defective forum clause, the options narrow. An arbitration cannot be commenced without a valid agreement. A court proceeding will cost time and produce a result that may not follow the assets. Our desk sees the full range – well-structured new agreements, renegotiations, and difficult matters where the structural problem is already baked in. The first category is always the least expensive.

The fourth is the role of the Hong Kong entity. Where a foreign principal structures its Mainland supply relationship through a Hong Kong entity – even a relatively thin one with a clear operational function – the legal footprint of the arrangement changes. The counterparty is dealing with a Hong Kong-incorporated entity. The contract runs between two parties with a Hong Kong nexus. The governing-law and forum election is natural rather than forced. That structural choice pays dividends if a dispute arises and it costs little to establish at the outset.

For foreign groups currently reviewing Mainland-facing supply or manufacturing arrangements, the position in Hong Kong after the Cap. 645 Ordinance and the 2020 Supplemental Arrangement to the arbitral-award enforcement regime is meaningfully more functional than it was five years ago. The tools exist. Whether they are available in any specific arrangement depends entirely on whether the contract was built to use them.

If you are in the middle of a negotiation, the window to restructure the agreement closes at signature. If you are reviewing a running contract, the window to address a defective clause opens when there is a commercial reason for both parties to revisit the terms. Neither window stays open indefinitely.

The sequence above describes the standard considerations in matters of this kind. Your matter will turn on the specific documents, the jurisdictions actually engaged, and the contractual architecture already in place – which is where the route is won or lost. For a structured assessment of your supply or manufacturing arrangement and the enforcement options across Hong Kong and the Mainland, write to us at info@lockhartyip.com.

Related practices

Corporate Counsel – cross-border contract review and Mainland-facing structuring advice
Disputes & Arbitration – HKIAC arbitration, enforcement, and interim-measures strategy

Frequently asked questions

What are the main risks in a supply or manufacturing contract with a Mainland China party?

The principal risks are a governing-law clause that does not connect to an enforceable forum, a dispute-resolution clause that cannot follow the counterparty's assets, and the absence of an interim-measures mechanism. Where the Mainland party holds its assets within the People's Republic, enforcement requires either a qualifying arbitration agreement activating the mutual-enforcement arrangements or a judgment route under Cap. 645. A contract built for a non-Mainland enforcement environment leaves the foreign principal with a claim but no practical route to the assets. Parties should verify the current position before acting.

What documents are needed for a supply or manufacturing contract with a Mainland China party?

The core document is the supply or manufacturing agreement itself, with a governed-by clause, a qualifying dispute-resolution clause, and a notice and payment architecture consistent with the chosen forum. Where Hong Kong-seated arbitration is elected, the arbitration clause should meet the formal requirements of the HKIAC Administered Arbitration Rules and the 2019 interim-measures arrangement. Supporting documents commonly include a product specification schedule, a quality-assurance annex, and – where a Hong Kong entity is interposed – the corporate authority documents for that entity. Counsel on our desk review the full suite before signature.

Which jurisdiction's law applies to a supply or manufacturing contract with a Mainland China party?

The governing law is a matter of party choice, expressed in the contract. Hong Kong law, the law of the People's Republic, or a third-country law may all be designated. For foreign principals, Hong Kong law is often the practical preference: it is a common-law system, English is an official language of its courts, and it connects naturally to HKIAC arbitration and the Mainland enforcement arrangements. The governing law affects how disputes are argued, not merely where they are heard – so the choice should be made with the substantive terms and the enforcement route in view.

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

Matter note: a supply or manufacturing contract with a Mainland China party