A Chinese Supplier Shipped Defective Goods: What a Buyer Can Still Do

Roman Verzin · October 16, 2026 · 11 min read

The advance was paid and the container arrived, but the goods inside are not what was ordered – a lower grade, units missing, wrong markings, or electronics that do not work. Or nothing arrived, and the factory has stopped answering. At that moment the buyer’s position is weaker than the contract suggests, because a buyer’s power in a China deal exists before the goods leave the factory. While part of the price is still owed, the factory has a reason to rework a lot or replace it. Once the balance is paid and the goods are loaded, that reason is gone, and returning a container of defective product across a border can cost more than the product. Inspection in the destination country is a report on a loss that has already happened.

What is left after shipment is negotiation backed by documents, and a formal case only where the sum justifies it. This guide goes through those steps in the order a buyer uses them, and then through the setup that keeps the next order from ending the same way. It is written for a business that buys from mainland factories through a Hong Kong company, but most of it holds for a buyer contracting from anywhere.

First: the file and the clock

Whatever route the dispute takes – a settlement, a mediation, an arbitration or a court – it is decided on paper, and the paper has to be assembled while the goods are still as they arrived. Report the defect to the factory in writing as soon as it is found, and check the contract for a notice period: if it sets one, the clock is already running. And record the evidence before the goods are moved or sold.

The file a buyer needs is the file a trading company keeps for its auditor anyway, plus the counterparty’s details, the specification, the approved sample and the evidence of what arrived.

• The contract, and who signed it. A mainland company’s business licence carries its registered Chinese name and its unified social credit code; it also names the legal representative. If the contract carries that registered name and the company seal, the counterparty exists. If it carries an English trading name, a sales office or an agent, it may name someone else, and who is bound by it is a question for your lawyer.
• The specification, and the approved sample. What was ordered, in enough detail that “not what was ordered” can be shown: grade, model, markings, packaging, quantity. A purchase order that says “car stereos, 2,000 pcs” gives nothing to measure a defect against. If a sample was signed off before production, that sample or its photographs belong in the file too, so that “it matches the sample you approved” can be checked.
• The invoice and the payment records. The invoice the factory issued and the bank entries that paid it, on the Hong Kong company’s statement, matched one to one.
• The packing list and the bill of lading. They record what the factory declared loaded. For missing units they separate a short shipment from a loss in transit, which is a different claim against a different party.
• The evidence of the defect. An inspection report from an independent inspector, or at least dated photographs and a count, taken when the goods were opened. A report written by the buyer’s own staff a month later is easier to argue with than an inspector’s report written when the container was opened.
• The correspondence. When and where the problem was reported, and what the factory answered. If the factory acknowledged the defect in writing, that is on the record.

The contract, the invoice, the transport document and the bank entry are the chain every Hong Kong trading company files for its annual audit anyway, as the trading guide sets out. Kept from the first order, that file is the core of the evidence a dispute needs.

Negotiating a settlement

The outcomes a buyer can press for are a replacement lot, rework before a second shipment, a partial refund, or a credit against the next order. The negotiation goes better when the groundwork is done before the first call to the factory.

• The factory’s current status. Whether the company on the contract is still registered and operating, and who its legal representative is now. The check runs through the mainland market regulator’s public registry, where a company’s licence status and its annual reports are visible. For larger sums it goes further, through licensed investigation channels that see more than the public record. When a factory has stopped answering, it may no longer exist as a registered company.
• A clear ask. Replacement, rework, refund or credit, with a number and a date, so that the factory has something specific to answer.
• The evidence attached. The demand arrives with the contract, the specification, the inspection report and the payment records, in Chinese.
• What the factory has to lose. A factory that wants the next order, or sells to other buyers in the same market, has a reason to settle. A factory with no reason to keep the relationship settles when the sum is small enough to be cheaper than the argument.

Between a demand and a case there are cheaper steps. If the order was placed through a platform with its own dispute process, that process has its own deadline and is the first thing to check. A formal demand sent by licensed counsel is a step short of a case. Mediation, where the factory agrees to it, settles without an award.

Many supplier disputes are settled by negotiation, and that negotiation is USG’s own work. USG is not a law firm, but its team has bought from Chinese factories for USG’s own projects and for clients since 2016 and has settled disputes with suppliers along the way. It negotiates in Chinese, which is what makes the conversation possible at all. How the factory is approached counts for as much as what is asked. China runs on relationships, as the guide to guanxi describes, and a factory extends trust to the person who makes the call before it weighs what is asked. A demand from a foreign buyer can sit unanswered. A word from someone whose opinion carries weight with the factory – its industry association, a local official, a larger customer or a partner it cannot do without – gets one. Knowing who that someone is, and having the standing to call, is part of what USG brings. USG handles the whole stage under its advisory work, as commercial dispute support. That covers the first assessment of what can still be claimed, the counterparty status check, the negotiation, a visit to the factory or an inspection of a lot still in China where it changes the outcome, and the documents for a settlement or for the lawyers. The first assessment can also conclude that nothing is left to press for; a buyer is better served hearing that early than paying for a process that cannot collect.

When a formal case is worth it

Whether a formal process pays depends on more than the size of the wrong.

The cost of the process is set against the sum at stake. That cost depends on the forum and the lawyer; it is a number to get from counsel for the specific case, with the contract and the file in front of them.

Where the money is matters as much. An award or a judgment against a mainland factory is collected on the mainland, through mainland courts, against assets the factory still has. If the factory has emptied its accounts or re-registered under a new name, the winning party holds a document and nothing else. The status check above exists for this reason: it shows whether there is anything to collect before a buyer pays to establish the right to collect it.

Time counts too. Under the Hong Kong International Arbitration Centre’s 2024 rules an award follows within three months of the close of proceedings, and under the expedited procedure for smaller disputes the award is due within six months. A court case has its own calendar. A buyer whose working capital is in the disputed lot may not be able to wait that long.

And the forum was decided when the contract was signed. Under mainland arbitration law, a court will not accept a case the parties have validly agreed to arbitrate, so a contract with an arbitration clause goes to the arbitration it names. A contract without one leaves the courts open on their ordinary rules; which court, and in what language, depends on the contract and is a question for your lawyer. For a Hong Kong buyer choosing a seat for the next contract, the public record says this much. By the Hong Kong Department of Justice’s own description, a Hong Kong seat is the only seat outside the mainland from which a party can ask mainland courts for interim measures, to preserve the factory’s property or evidence while the case runs. That arrangement has been in force since October 2019, and it covers an arbitration administered by one of the Hong Kong institutions it lists. And a Hong Kong award is recognised and enforced on the mainland under a Hong Kong–mainland arrangement of its own; the New York Convention, which governs enforcement between its member states, does not apply there. Mainland arbitration law was amended in September 2025 and the amended law has applied since 1 March 2026, so anything a buyer read about it before then needs re-checking. How a clause is written – the seat, the language, the number of arbitrators, the law of the clause itself – is a short article of its own; the Centre publishes a model clause to start from.

Where the sum is small against the cost of a case, what is left is a negotiated settlement backed by the file, and a next order structured so the problem cannot repeat. Where the sum justifies a case and there is a counterparty with assets to collect from, the matter goes the legal way, to mediation or arbitration and on to enforcement. USG has professional lawyers in its team for that stage and has been through court proceedings in China. They run the case, with local lawyers engaged where a court requires them; USG runs the China side and remains the client’s single contact.

How the next order avoids the same dispute

A supplier dispute is cheaper to prevent than to run, and the prevention is a set of habits. The first of them is the choice of factory, and it decides everything downstream. A company can spend a month in China visiting dozens of factories and still not find the right one, and a factory picked for the lowest price tends to deliver the quality problems that cost more than the saving – two of the three mistakes the guide to how access works in China lists. Someone who knows the industry can usually name the two or three factories that fit, already used to foreign buyers.

• Check the supplier at the depth the deal deserves. A first screening uses the public record: the business licence with the registered name, and the company’s basic scale. A shortlist gets a deeper look – references and existing clients, a visit in person or by video, and a conversation with the people who run it. A large one-off order justifies a factory visit, with the production line photographed and the certificates checked on site; a recurring flow needs a full check with financial records. Spending too little on this check is the most expensive saving a buyer makes.
• Put the registered name and the dispute clause in the contract. The factory’s registered Chinese name, licence number, legal representative and company seal on one side; the Hong Kong company on the other; the specification and the approved sample in an annex; and the dispute clause chosen with a lawyer before signing.
• Keep a balance until after inspection. Whatever the split – an advance to start production, the rest against the inspection report – the last payment follows the check.
• Inspect inside China, before loading. The basic check is the same for any product: the goods against the order and the sample, markings against the destination’s rules, a function test, and control of the loading so that the lot inspected is the lot shipped. For finished electronics the inspector also separates new from refurbished and checks the plugs and voltages for the market, and the keyboard layout where it applies. For components, an independent laboratory tests the batch and the loading is supervised.
• File the documents from the first order. Contract, invoice, shipping document, bank entry, inspection report, correspondence – sorted by month, from day one.

Run this way, the first order leaves the buyer with an unpaid balance, a file that proves what was agreed, and a counterparty that exists.

Need help with this?

If a supplier has shipped the wrong goods, or has stopped answering after an advance, send us the contract, the correspondence, the payment records and whatever evidence of the defect exists, and say whether a balance is still unpaid. The first call establishes what can still be claimed and whether the sum justifies a formal step. Book a free 30-minute consultation.

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