China Business Law Glossary

Glossary

Plain-English definitions of the terms you'll meet when doing business in China — written by our lawyers, not a dictionary.

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AEO Certification

AEO certification is China Customs' highest corporate credit rating. Certified companies get faster clearance, fewer inspections and reciprocal benefits in dozens of partner countries.

AQL (Acceptable Quality Limit)

AQL is the statistical sampling standard (ISO 2859-1) used to decide whether a production batch passes or fails inspection. It defines how many defective units are tolerable in a random sample.

The business license is the official certificate, issued by SAMR, that proves a Chinese company legally exists. It shows the company's registered name, scope, capital, address and legal representative.

CIETAC

CIETAC is China's leading international arbitration institution. Foreign companies use CIETAC clauses to get awards that Chinese courts will actually enforce against Chinese counterparties.

Company Chop (Official Seal)

The company chop is the official seal of a Chinese company. A document stamped with the chop generally binds the company — often regardless of who applied it — making chop custody a core control issue.

Customs IP Recordal

Customs IP recordal is the registration of your trademarks, patents or copyrights with China Customs (GACC) so that officers proactively detain suspected infringing shipments at the border.

Dishonest Debtor Blacklist

The dishonest debtor blacklist is the Supreme People's Court register of judgment debtors who refuse to comply with court rulings. Listed companies and their legal representatives face travel bans, credit freezes and public shaming.

Economic Compensation (Severance)

Economic compensation is the statutory severance a Chinese employer owes on most terminations: one month's salary per year of service. Unlawful termination doubles it.

Fapiao (Official Invoice)

A fapiao is the official tax invoice issued through China's government-controlled invoicing system. It is the only document that proves a transaction for tax purposes — a commercial invoice does not count.

Foreign Investment Negative List

The negative list is China's official catalogue of industries where foreign investment is restricted or prohibited. Any sector not on the list is open to foreign investors on the same terms as domestic ones.

Free Trade Zone (FTZ)

A free trade zone is a designated area in China with liberalized rules for foreign investment, customs and currency. FTZs apply a shorter negative list and offer bonded logistics advantages.

HS Code

An HS code is the standardized commodity classification number used by customs worldwide. In China it runs to 10 digits and determines duty rates, VAT, licensing requirements and export controls for your goods.

Incoterms

Incoterms are the standardized trade terms (FOB, CIF, EXW, DDP and others) that allocate costs, risk and customs responsibilities between buyer and seller in cross-border sales.

Joint Venture (JV)

A joint venture is a Chinese company co-owned by foreign and Chinese investors. It is used where a sector restricts full foreign ownership or where a local partner brings market access the foreign side cannot build alone.

Legal Representative

The legal representative is the individual registered as having statutory authority to act for a Chinese company. Their signature can bind the company, and they carry personal exposure for company misconduct.

Letter of Credit (L/C)

A letter of credit is a bank's undertaking to pay the seller once it presents documents that strictly comply with the credit's terms. It replaces trust in the counterparty with trust in a bank.

NNN Agreement

An NNN agreement is a China-specific contract that prohibits a counterparty from disclosing, using or circumventing your confidential information. It replaces the Western NDA, which only covers disclosure.

Non-Compete Agreement (China)

A China non-compete restricts senior or knowledge-holding employees from joining competitors for up to two years after leaving — but it is only enforceable if the employer pays monthly compensation during the restriction.

OEM vs ODM

OEM means a factory manufactures your design; ODM means you put your brand on the factory's design. The distinction decides who owns the product IP — and who can sell it to your competitors.

Processing Trade

Processing trade is China's customs regime for importing materials duty-free, processing them into finished goods, and re-exporting them — tracked against a customs handbook of inputs and outputs.

Registered Capital

Registered capital is the amount of capital a Chinese company's shareholders commit to contribute, stated on the business license. It is subscribed rather than paid up front, but it remains a real legal obligation.

SAMR (State Administration for Market Regulation)

SAMR is China's market regulator. It registers companies, issues business licenses, enforces competition, advertising and product quality law, and supervises trademarks through the CNIPA system.

Trademark Squatting

Trademark squatting is registering someone else's brand in China before they do. Because China is a first-to-file jurisdiction, the squatter's registration is presumptively valid — and can be used against the real brand owner.

WFOE (Wholly Foreign-Owned Enterprise)

A WFOE is a Chinese limited liability company owned 100% by foreign investors. It is the standard vehicle for foreign companies that want full control of their China operations without a local partner.

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