If your supplier turns out to be a trading company, you do not need to find a new supplier. You need a different set of documents. The contract you sign with the trading company can make it answer for the factory's work, but it cannot stop the factory from using your drawings, keeping your molds or selling your design to someone else. Only a document the factory signs and seals can do that. Our view is that every order placed through a trading company should come with at least three signatures from the factory itself: an NNN undertaking, a mold confirmation and a commitment to share liability for delivery and quality.
Buyers usually ask whether it is safe to work with a trading company. The better question is who you can hold to account when something goes wrong. With a trading company in the middle, the honest answer is often "only the trading company", and that is the gap this article is about.
Why doesn't your contract reach the factory?
Article 465 of the Civil Code states the starting point: a lawfully formed contract binds only its parties, unless the law provides otherwise. The factory is not a party to the contract you sign with the trading company, so it owes you nothing under it. The confidentiality clause, the non-use and non-circumvention promises, the quality standard and the delivery date all bind the trading company alone.
In practice this matters in three situations. The first is copying. If the factory sells your product on its own, your NNN claim lies against the trading company, which did not copy anything and may have little to pay with. The second is molds. You paid the trading company for tooling, but the tooling sits in the factory, and the factory has never acknowledged that it belongs to you. The third is a direct approach. A common pattern is that the factory contacts you after a few orders and offers a lower price. If you accept, the trading company may say you breached the non-circumvention clause in its own terms.
What Chinese law already gives you against the trading company
The contract with the trading company is not worthless. It gives you more than many buyers realise, provided it is drafted as a manufacturing contract rather than a simple purchase order.
Under Article 772, a party that undertakes manufacturing work must do the main work with its own equipment, technology and labour unless the parties agree otherwise. If it hands the main work to a third party, it remains responsible to you for that third party's work, and if it did so without your consent, you may terminate the contract. Article 523 adds that where the parties agree a third party will perform, and the third party fails, the original party is liable for the breach. Put simply, if the contract names the factory as the performing party, the trading company answers for the factory's late delivery and defects as if they were its own.
Two drafting points follow. Name the factory in the contract by its full Chinese name and unified social credit code, and give your consent to that factory only. Then state that moving production to any other factory without your written consent is a material breach that allows termination and a refund of prepayments. Article 772 already gives you a termination right in that situation, but a contract clause removes the argument about whether the work moved was "main" work.
When the trading company is really the factory's export agent
Sometimes the trading company is not buying from the factory and reselling. It is exporting on the factory's behalf, often because the factory does not handle export paperwork or foreign currency itself. Chinese law treats that relationship differently.
Under Article 925, if a trading company signs in its own name but within the factory's authority, and you knew of that agency relationship when you signed, the contract binds the factory and you directly, unless there is clear evidence it was meant to bind only the trading company. Under Article 926, if you did not know, and the trading company fails to perform because of the factory, it must disclose the factory and you may choose to sue either one, but you cannot change your choice later.
Our view is that this is a useful backstop and a poor plan. Whether you "knew" of the agency, and whether the factory authorised the deal, become questions of evidence in a dispute. If the arrangement is an export agency, say so in the contract, attach the factory's authorisation, and still get the factory's own signature on the documents below.
The three documents the factory should sign
The first is an NNN undertaking. The factory signs and seals either the same NNN agreement as the trading company, as an additional party, or a separate NNN addressed to you. It should cover your drawings, samples and product specifications, prohibit the factory from making or selling the product for anyone else, and include a fixed amount of liquidated damages. Our article on NNN agreements explains how the core terms should be drafted.
The second is a mold confirmation letter. It lists each mold by number, photograph and the product it makes, confirms that you own it, confirms the factory holds it on your behalf, and commits the factory to release it within a fixed number of days of your written request. This document has a specific job under Chinese law. Article 783 allows a manufacturer to retain finished work if it has not been paid, unless the parties agree otherwise, and the general rules on liens may let a factory hold assets it lawfully possesses when the trading company owes it money. Article 62 of the Supreme People's Court's interpretation on security interests draws the line. If the trading company fails to pay for the very order in which your molds are used, the factory may retain them even though they belong to you, because the debt and the molds arise from the same legal relationship. If the debt comes from unrelated orders, you as a third party can demand the molds back. The first situation is the common one in a trading-company structure, and you do not want to litigate where the line falls. Have the factory waive any right to retain your molds, samples and finished goods.
The third is a debt joinder or guarantee letter. Article 552 allows a third party to join an existing obligation by notice to the creditor, and the creditor may then hold it jointly liable with the debtor within the scope it agreed to take on. A short letter in which the factory joins the trading company's obligations on delivery, quality and the NNN gives you a direct claim against the company that actually has the production line and the assets. Factories often resist this. If they do, a narrower letter covering quality defects alone is still worth having.
Payment, molds and dispute resolution
Three practical points tend to decide whether the structure holds up.
Watch the money flow. Many factory disputes start because the trading company stopped paying the factory, and the factory responds by holding your goods or molds. Ask the trading company to confirm in writing that the factory has been paid for each completed order, or, on larger orders, pay the tooling cost and part of the production cost directly to the factory under a written three-party payment instruction. Never pay any account that the contract does not name.
Line up the dispute clauses. An arbitration clause in your contract with the trading company does not bind the factory. If the factory's documents say nothing about disputes, you may end up in two proceedings in two places. Our usual approach is to give every document the same arbitration institution or the same court, normally where the factory is located, so that the claims against both companies can be heard together if the factory agrees or the rules allow.
Check who you are actually contracting with. A trading company in Hong Kong with a factory in Guangdong is a common arrangement. A Hong Kong company can be a perfectly good counterparty, but its assets may be thin and outside the mainland, which makes the factory's direct signatures even more important.
When a three-party agreement is worth it
For small trial orders with no custom tooling, the trading company contract plus a factory NNN is usually enough. Once you are paying for molds or the product depends on your own design, we recommend a single three-party manufacturing agreement signed by you, the trading company and the factory. It allocates roles in one place: the trading company handles orders, export and payment; the factory manufactures, holds the molds for you and is bound by the NNN; and both are jointly liable for quality and delivery. Expect the factory to push back on joint liability. The point we would not give up is the mold waiver and the NNN, because those protect assets you cannot replace by finding another supplier.
One thing we do not recommend is cutting the trading company out after it introduced you to the factory, without checking your existing contract first. If that contract contains a non-circumvention clause in the trading company's favour, a direct deal with the factory may expose you to a claim. Read it before you take the factory's call.
Frequently asked questions
- Can I sue the factory if my contract is only with the trading company? Usually not under that contract. Unless the trading company was acting as the factory's agent and you knew it, the factory is not a party. You need a document the factory signed.
- Will a Chinese factory sign documents with a buyer it does not invoice? Many will, especially for a mold confirmation or NNN, if the request comes with the first order rather than after a dispute. Resistance to signing anything is itself useful information.
- Should the factory documents be in Chinese? Yes. Prepare them in Chinese and English with the Chinese text prevailing, and make sure each one carries the factory's company seal, not only a signature.
- Does the trading company have to agree to the factory signing? Not legally, but in practice you should involve it. A three-party document signed openly avoids later arguments about circumvention.
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We prepare the factory NNN, mold confirmation and liability letter, or a full three-party manufacturing agreement, in Chinese and English, drafted to be enforced where the factory is located.
Related Reading
- Is Your Chinese Supplier a Real Factory or a Trading Company? How to Check Before You Pay
- NNN Agreements in China: How to Stop Your Chinese Factory from Copying or Selling Your Product
- Chinese Factory Won't Return Your Molds? Tooling Ownership and How to Get It Back
This article is general information on PRC law as of 9 October 2026 and does not constitute legal advice. The answer in any matter depends on its documents and facts.