A China distribution agreement should identify the commercial model before it allocates territory or sales targets. A distributor normally buys products and resells them in its own name and for its own account. That differs from an agent that introduces or concludes transactions for a principal, and from a franchise that licenses a business format with continuing operational controls.
The agreement must connect the supplier's commercial objectives with Chinese contract, product, intellectual-property, data and competition rules. Particular care is needed where the supplier wants exclusivity, controls online channels, monitors downstream prices, grants access to trademarks or customer data, or expects a rapid exit from a poor-performing distributor.
1. Confirm the distribution model
Record which entity purchases the product, takes title and inventory risk, invoices the end customer, collects payment, handles returns and bears bad-debt exposure. If the supposed distributor is paid only a commission, cannot set its own resale terms and acts in the supplier's name, the legal and tax analysis may look more like agency.
Do not use a distribution agreement as a substitute for a regulated franchise, consignment, marketplace-operation or commercial-agency arrangement. The contract should match the activity the parties will actually perform.
2. Define appointment, territory and channels
Identify the products, territory, customer groups and channels covered by the appointment. State whether the appointment is exclusive, sole or non-exclusive and reserve any direct-sales, named-account, government, cross-border e-commerce or global-customer carve-outs.
Exclusivity should be linked to measurable conditions such as minimum purchases, launch milestones, service capacity and compliance. Define how targets are set, whether forecasts are binding, what happens after a shortfall, and whether exclusivity converts to non-exclusive status before termination.
3. Orders, supply and inventory
Separate the framework appointment from individual purchase orders. Specify order acceptance, lead times, allocation during shortages, permitted changes, delivery terms, title and risk, inspection, rejection and warranty procedures. If Incoterms are used, identify the edition and named place; Incoterms do not settle ownership, payment or dispute resolution.
Address safety stock, slow-moving inventory, product changes, recalls and discontinued lines. A supplier should not promise an unconditional repurchase without defining eligible stock, condition, valuation, tax documents and return logistics.
4. Pricing and competition-law controls
A supplier may publish recommended or maximum resale prices, but fixed resale prices, minimum resale prices and mechanisms that achieve the same result require specific Chinese antitrust review. Risk can arise through margin controls, discount ceilings, price-monitoring systems, automatic platform rules, rebates, supply threats or termination pressure used to enforce a downstream price.
China's amended Provisions on Prohibiting Monopoly Agreements, effective 1 February 2026, specify conditions under which certain vertical agreements are not prohibited. For fixed or minimum resale-price arrangements, the parties must each remain below a 5 percent share in every relevant market for each agreement year and annual turnover in the products covered by the agreement must remain below RMB 100 million. For other vertical agreements, the stated market-share threshold is below 15 percent. Multiple counterparties in the same relevant market are aggregated, evidence is required, sector-specific rules may differ, and the protection does not apply where evidence shows an exclusionary or restrictive effect. These are not drafting shortcuts: relevant-market definition, annual evidence and actual implementation matter.
Exclusivity, customer restrictions, online-sales limits, most-favoured-nation terms, tying and differentiated conditions also require review in context, particularly where a party has market power. Keep antitrust approval separate from commercial sign-off and train sales staff not to convert a lawful recommendation into enforced pricing through calls, messages or rebate practices.
5. Brand, intellectual property and digital accounts
Confirm that the supplier owns or is authorized to license the Chinese trademarks, product images, manuals, software and other materials used by the distributor. Define the permitted marks, presentation standards, approval process and rules for local-language content.
The agreement should prohibit trademark filings, company names, domain names and marketplace accounts that capture the supplier's brand. State who registers and controls stores, social-media accounts, mini-programs, advertising accounts and administrator credentials. Provide for transfer or shutdown at termination and immediate cessation of unauthorized brand use.
6. Product, marketing and regulatory compliance
Allocate responsibility for importation, customs, Chinese labels, product registrations, standards, advertising claims, warranties, after-sales service, complaint handling, recalls and regulator contact. A contractual allocation does not eliminate statutory obligations to customers or authorities.
Require approval for sensitive claims and a process for reporting incidents, suspected counterfeits and regulatory inquiries. The supplier should have proportionate audit and record-access rights without taking over the distributor's independent day-to-day business.
7. Online sales, sub-distributors and data
State whether the distributor may sell through marketplaces, social commerce, livestreaming, its own website or cross-border channels. Define approved store names, content, customer service and rules for promotions. Restrictions should be checked for competition-law and platform consequences rather than copied from another market.
Require written approval for sub-distributors and flow down material product, brand, confidentiality, anti-bribery and audit obligations. If customer, employee or device data is shared, identify each party's role, purpose, access, retention and security responsibilities. Cross-border access or transfer may require separate compliance steps.
8. Compliance, books and audits
Include anti-bribery, sanctions, export-control, tax, competition, advertising and product-compliance commitments appropriate to the product and channel. Define record retention, certifications, training, audit triggers and remediation. Audit rights should be focused, confidential and workable under data and cybersecurity restrictions.
Prohibit side agreements and unauthorized commitments to customers or officials. Establish an escalation route for suspected misconduct and preserve rights to suspend supply while a material compliance concern is investigated.
9. Term, termination and transition
Distinguish expiry, termination for cause, termination after cure, and any convenience right. Address outstanding orders, unpaid invoices, customer warranties, confidential information, inventory, spare parts, marketing materials, digital accounts and licences.
A sell-off period should identify eligible stock, channel, price governance, brand-use rules and end date. If the supplier may repurchase inventory, specify whether the mechanism is mandatory or optional and how damaged, obsolete, customized or improperly stored goods are treated. Require a final account of customer issues and transfer of supplier-owned accounts and records.
10. Governing law, disputes and evidence
Choose governing law and forum deliberately. A dispute clause should identify the court or arbitral institution precisely and account for interim relief, evidence preservation and enforcement. A foreign judgment or award is useful only if it can be recognized and enforced where assets are located.
Preserve signed agreements, company-seal and authority evidence, purchase orders, invoices, delivery and acceptance records, target calculations, price communications, account ownership records, compliance reports, breach notices and termination steps. Informal messages may become decisive evidence.
Contract checklist
- Correct legal entities, authority and notices.
- Products, territory, channels and reserved accounts.
- Exclusivity conditions, forecasts and minimum purchases.
- Ordering, supply, delivery, inspection and warranty.
- Pricing autonomy and antitrust review controls.
- Trademark, content, marketplace and account ownership.
- Product, advertising, data and regulatory responsibilities.
- Sub-distributors, records, audits and anti-bribery controls.
- Termination, inventory, sell-off and transition.
- Governing law, dispute forum and evidence plan.
Primary sources and review date
- PRC Civil Code, including the contract and sales-contract provisions
- SAMR Provisions on Prohibiting Monopoly Agreements, amended for 2026
- SAMR explanation of the 2026 vertical-agreement thresholds
- Antimonopoly Compliance Guidelines for Business Operators
Reviewed 8 September 2026. General information only; product regulation, market definition, market shares and the parties' actual conduct must be assessed for the specific arrangement.
Related guides: Sales contracts · Counterparties and authority · Chops and control · Performance, breach and evidence · Dispute clauses and forum · International distribution agreements: drafting depth.
