China NNN Agreements FAQ (3): Drafting the Agreement

Part 3 of six in the FAQ series; the numbering continues from part 2. The core text of the topic is the main guide; the other FAQ parts are listed at the bottom of this page.

Questions in this part

Q21. Should it be unilateral or mutual?

Either — match the structure to the business need. Where only the buyer discloses, unilateral is simpler and cheaper. But where the Chinese manufacturer also provides materials to the foreign side — production processes, technical data, samples — the same NNN clauses should run in that direction too, and a mutual structure is exactly right. What to avoid is importing a mutual template blindly: mirror-image obligations nobody needs, and negotiation demands nobody wants.

Q22. Does the agreement need to define a “purpose”?

Yes — always. The permitted-purpose definition (quotation, feasibility review, sampling, or the identified order) is the baseline that makes the non-use clause work: without a defined use, “use outside the purpose” has nothing to be outside of. Anything beyond the stated purpose is breach. This is one point where drafting conservatism genuinely pays.

Q23. Should the agreement mention the project?

Define the scope of information precisely — a schedule identifying the sensitive materials (files, prototypes, data) improves proof, because the defined information and your actual disclosure record must fit each other. But there is no need to name or describe the project itself beyond what identification requires: even the project’s existence can be worth protecting, and a generic description serves.

Q24. What about a “New Work” provision?

Handle improvements deliberately. The statutory default gives improvements made by the Chinese party to the Chinese party — so the contract should grant the buyer a free licence to use those improvements and prohibit the Chinese party from using them to make competing products. Deeper allocation of jointly developed IP (who owns what, assignment mechanics) belongs in the product development or manufacturing agreement. Without any clause, improvements and modifications default into dispute.

Q25. How long should it last?

Layered: the non-disclosure, non-use, and non-circumvention obligations survive termination permanently; document-delivery and supply provisions can carry a 3–5 year term; if the Chinese side insists on a fixed tail for the core obligations, anchor it to the last disclosure rather than the signing date; non-circumvention is commonly 2–3 years post-termination.

Q26. Why no entire-agreement / no-partnership / notice clauses?

Chinese law does not insert unmentioned terms the way common-law systems imply them, and heavy common-law boilerplate adds nothing in a Chinese forum; short civil-law instruments are deliberate. But audit the later contracts: an entire-agreement clause in the manufacturing agreement is exactly where pre-signing NNN claims go to die, so any later agreement must expressly preserve them. (A Chinese court can apply an entire-agreement clause if present; it is a clause to manage, not a void concept.)

Q27. Can I use a template I found online?

A free template is not invalid merely because it is free. It is adequate where sensitivity is low, there is a single verified entity, and the information is tightly limited. It is a poor choice where core CAD files, formulas, customer routes, or paid tooling are in play, where multiple entities are involved, or where subcontracting is likely. The seven checks that decide it: who is bound; what is protected; what conduct is prohibited; who answers for downstream recipients; when duties apply; where a claim can be brought; whether remedies reach evidence and assets. Most templates fail several.

Q28. Which language should I use?

Bilingual, with one controlling version matched to your forum: for Chinese court litigation, the Chinese version controls (courts sit in Chinese and translate your English evidence anyway); for arbitration in English, the English version can control. Draft the Chinese text in Chinese from the start with a Chinese-speaking lawyer — never machine-translate. Making both versions equally controlling invites a discrepancy fight; pick one.

Q29. What law should govern?

PRC law. The evidence, the defendant, the assets, and the enforcement are all in China — the closest connection — and a foreign governing-law clause buys nothing while adding proof burdens (the court needs the foreign law’s content proven before applying it, and falls back to Chinese law if not).

Q30. What should a China-compliant NNN include? (checklist)

Exact registered Chinese entity + USCC; permitted purpose; defined confidential information (including pre-signing disclosures and informal channels); non-disclosure (group-wide, employee-extending, approval process); non-use (look-alikes, reverse engineering, unauthorised IP filings, platform sales); non-circumvention (customers + distributors + suppliers); liquidated damages calibrated within the ~30% benchmark + fee-shifting; subcontractor consent + flow-down + joint and several liability; improvement terms (free licence to buyer + no competing use); IP clawback; tooling and mould terms (or express deferral to the manufacturing agreement); evidence and audit cooperation; governing law (PRC); forum (chosen deliberately — court for speed, arbitration for structure); language + controlling version; service-of-process clause; duration (the four clocks, with permanent 3N obligations); execution block matching the effectiveness clause.

The full series