Start minimum order terms with a Chinese distributor at the first order: size it to a launch plan and get it prepaid. Tie any annual minimum to the exclusivity it pays for, and write down what a miss triggers. Consignment is for a short test. A Chinese court holds you to the route you wrote, so write numbers and steps you can live with.
The laws, filings and court documents quoted here were checked October 26, 2026.
In our experience the first term sheet from a Chinese distributor asks for a small first order, no yearly commitment and, if it can get it, stock on consignment. The brand’s first draft asks for the opposite. Both are opening positions.
Talks usually settle on one of four structures, and each moves risk from one side to the other. The contract itself should be drafted and read by a lawyer qualified in China.
Minimum order structures with a Chinese distributor
| Structure | What it commits | Risk to you | Risk to the distributor | When it fits |
|---|---|---|---|---|
| First order | One purchase, sized to the launch | Low when prepaid. A deposit labeled 定金 is capped at 20% of the contract | It owns all the stock and the sell-through | Every new relationship |
| Annual minimum | A yearly purchase target | Acting on a miss without a written route. Dirui did, and was ordered to pay 5,864,950 RMB | It loses the exclusivity, or pays a sum you agreed | Any exclusive grant |
| Take-or-pay | Payment for the shortfall, ordered or not | A court can cut a payment more than 30% above your loss | It pays for stock it never took | Capacity or stock you reserve for one buyer |
| Consignment | Stock stays yours until it sells | Duty is due within 15 days of the declaration, sold or not | Little beyond storage | A short, small test |
Size the first order to the launch plan
Build the first order from the plan, line by line: the stores and online shops that will list the product at launch, and the units each one takes on day one. Then add the stock the distributor should hold until the next shipment can land (that depends on your lead time, and a sea shipment takes weeks). The total is a first order you can defend in the meeting. It also gives you a reorder date to check against.
A distributor that won’t commit to a launch plan can’t really commit to an order either.
Ask for prepayment. If the deal uses a deposit, mind the word. In Chinese law a 定金 is a specific thing with a cap and a forfeit rule attached.
A deposit (定金) may not exceed 20% of the main contract’s value, and any excess has no deposit effect. A party that pays one and fails to perform loses it; a party that receives one and fails returns double. Source: National People’s Congress, Civil Code (民法典) Arts. 586 and 587, via the Ministry of Commerce (商务部), in force January 2021. https://policy.mofcom.gov.cn/claw/clawContent.shtml?id=70524
So a 30% advance should be written as a prepayment against the price, with its own refund terms.
If you ship part of the first order on credit, keep title until the money lands. Chinese law allows it.
A sale contract may keep ownership with the seller until the buyer pays, and the seller may take the goods back if the buyer still hasn’t paid a reasonable time after a demand. Retained title that is not registered can’t be asserted against a good-faith third party. Source: National People’s Congress, Civil Code Arts. 641 and 642, via the Ministry of Commerce, in force January 2021. https://policy.mofcom.gov.cn/claw/clawContent.shtml?id=70524
The registration is an online filing, made by the parties themselves.
Since January 1, 2021, retention of title is registered by the parties in the People’s Bank of China Credit Reference Center’s unified registry for movable assets. Source: State Council (国务院), decision 国发〔2020〕18号, December 2020. https://www.mee.gov.cn/zcwj/gwywj/202012/t20201230_815450.shtml
Tie the annual minimum to exclusivity
An annual minimum is the price of exclusivity. Without a grant to protect, a distributor has little reason to sign one, and you have little to take back if it misses. Our guide to China distributor exclusivity covers how to grant it by region and channel. This section is about the target.
Dirui, a listed Chinese maker of urinalysis equipment, shows the risk of a target with no written route for a miss.
Dirui made Cheng’antang its exclusive Beijing distributor in March 2008, with targets agreed each January: 32,000 tubes of test strips for 2008 and 34,000 for 2009. After two years of missed targets, Dirui canceled the exclusivity from 2010, treated Cheng’antang as an ordinary distributor and began supplying other Beijing distributors. Source: Changchun Dirui Medical Technology (长春迪瑞医疗科技), IPO prospectus, August 2014. http://static.cninfo.com.cn/finalpage/2014-08-28/1200180236.PDF
The distributor sued, and won.
The Beijing No. 1 Intermediate People’s Court ordered Dirui to pay Cheng’antang 5,864,950 RMB in liquidated damages. The judgment is final. Source: Changchun Dirui Medical Technology, litigation update, April 2016. http://static.cninfo.com.cn/finalpage/2016-04-16/1202187573.PDF
The filings show no written termination before the suits. The Civil Code ties termination to notice.
A party ending a contract must notify the other side, and the contract ends when the notice arrives. Source: National People’s Congress, Civil Code Art. 565, via the Ministry of Commerce, in force January 2021. https://policy.mofcom.gov.cn/claw/clawContent.shtml?id=70524
The fix is in the drafting. State the minimum per year, in units or value, for each region and channel that carries exclusivity. Name the review date. Then say what a miss does: the exclusivity for that region turns non-exclusive when your written notice arrives, and the rest of the contract runs on. That’s a remedy you can use without going to court.
Build the number itself from the distributor’s own sell-out plan for the year. Then a miss tells you something.
Keep the minimum apart from the price. A yearly purchase target sets volume. A floor under the distributor’s own selling price is a different clause, and for goods the distributor has bought, Chinese law bans it.
Operators may not agree with a trading partner to fix the resale price to third parties or to set a minimum resale price, unless they prove the deal doesn’t exclude or restrict competition or meet the regulator’s market-share safe harbor. Source: National People’s Congress, Anti-Monopoly Law (反垄断法) Art. 18, via the Ministry of Commerce, as amended June 2022. https://policy.mofcom.gov.cn/claw/clawContent.shtml?id=97047
Take-or-pay, and why a court can cut it
Take-or-pay makes the distributor pay for the shortfall whether it ordered the goods or not. It has a place when you reserve production or stock for one buyer, say a private-label run or a dedicated pack size. Applied to a normal consumer range, it turns a sales target into a debt, and a court measures that debt against your loss.
Damages equal the loss the breach caused, including the benefit the contract would have produced, but no more than the breaching party foresaw or should have foreseen at signing. Source: National People’s Congress, Civil Code Art. 584, via the Ministry of Commerce, in force January 2021. https://policy.mofcom.gov.cn/claw/clawContent.shtml?id=70524
An agreed payment that runs far above it can be cut.
An agreed penalty more than 30% above the loss is generally excessive. A party in bad-faith breach generally can’t get it reduced. Source: Supreme People’s Court (最高人民法院), interpretation on the Civil Code’s general contract rules (法释〔2023〕13号) Art. 65, December 2023. https://www.court.gov.cn/fabu/xiangqing/419382.html
Want a shortfall payment anyway? Tie it to what you’d lose, the margin on the reserved goods or the cost of the run, and keep the paperwork that proves it.
Consignment works as a test
Under consignment the stock stays yours until it sells. The closest Chinese contract is the commission trade (行纪合同).
A commission agent trades in its own name for the principal, who pays a fee. Selling below the principal’s set price needs consent unless the agent makes up the difference. If goods can’t be sold, the principal must take them back after notice, or the agent may lodge them. Source: National People’s Congress, Civil Code Arts. 951, 955 and 957, via the Ministry of Commerce, in force January 2021. https://policy.mofcom.gov.cn/claw/clawContent.shtml?id=70524
Customs has a trade mode of its own for it.
Consignment goods are declared under customs trade mode 1616, 寄售代销. Source: State Administration of Foreign Exchange (国家外汇管理局), Hunan branch, September 2019. https://www.safe.gov.cn/hunan/2019/0923/1139.html
The duty clock starts at the declaration.
Duty is paid within 15 days of completing the customs declaration. Source: National People’s Congress, Tariff Law (关税法) Art. 43, on the Chinese government website, April 2024. https://www.gov.cn/yaowen/liebiao/202404/content_6947843.htm
So a general-trade consignment pays duty at the border on stock that may come back. Agree who pays it, and who pays the freight home.
A distributor that asks for consignment on the first order is asking you to carry its risk. Use it when the test is yours: a few SKUs, a fixed window, a monthly sell-out report, a written price instruction and a return date.
If the test is really about demand, a bonded warehouse behind your own cross-border store is the other route. Our Tmall Global calculator shows the cash it ties up.
A bonded warehouse deposit of 100,000 RMB plus a tax prepayment of 300,000 RMB: 400,000 RMB committed before the first order, refundable on exit. Source: TheChinaPath calculator data, October 2026.
That cash comes back when you leave. Consignment stock comes back too, by freight, and somebody has to pay for the trip.
FAQ
Is a minimum purchase clause enforceable in China?
Yes, and it binds you too. Dirui stripped a distributor of its exclusivity after two missed years; the filings show no written termination, and an appeal court ordered Dirui to pay 5,864,950 RMB. Write what a miss triggers and act by written notice. An agreed payment can be cut when it runs more than 30% above the loss, so tie any shortfall payment to a cost you can show.
Should I accept consignment on a first order?
Only for a test you control. Under consignment you own the stock, the duty is paid at import whether it sells or not, and unsold goods come back at your cost unless the contract says otherwise. A distributor that buys its first order carries that risk itself. If a candidate insists on consignment, ask why, then ask for its sell-out plan.
How big should a first order be?
As big as the launch plan supports. Count the listings at launch and the units each takes, then add the stock that has to last until the next shipment lands. Ask for prepayment. If a distributor offers to buy far more than the plan supports, ask where the extra will go before you ship it.
Every distributor in Compass has been met in person, and our guide to finding a distributor in China lists the terms to settle before signing. After signature, distributor management covers the relationship.
Updated October 27, 2026
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