Defective Goods From China: Refund, Replacement or Discount?

The goods have arrived, and some are defective. The supplier offers a small discount and asks you to keep everything. You want your money back, or new goods that work.

Who decides? Under China's Civil Code, the buyer does, within limits. When the supplier won't accept your choice, I take up quality disputes with Chinese suppliers.

Who chooses the remedy

For a sale of goods, the Civil Code sends quality claims to its general rules on breach of contract (art. 617).

First, read your contract. If it sets out remedies for defects, those terms apply. It may say nothing clear, and the gap can't be filled from its other terms or trade practice (art. 510). Then art. 582 lets the injured party, here the buyer, choose:

• repair;
• redo, meaning the goods are made again;
• replacement;
• return of the goods, with the price paid back;
• a price reduction.

So the supplier's discount is one option on the list. The choice is yours.

The limit is the word "reasonably" in art. 582. You choose according to the nature of the goods and the size of the loss. A few scratched units in a large order may justify repair, replacement of those units or a price cut. In my view, they won't justify sending the whole shipment back.

In a published case, a company bought five filters. The contract said the supplier would repair, exchange or take back goods that failed during the warranty. The buyer complained of dents, chipped flanges and other faults, and sued for a full refund. The Shanghai Jinshan District People's Court said the clause didn't let the buyer choose a return for any defect. A return ends the contract, so it fits only defects that defeat its purpose. These were defects in appearance. The court ordered a price cut of about a third ((2024) Hu 0116 Min Chu No. 8299).

Sending the goods back

Sometimes the defects mean you can't achieve the purpose of the contract. In plain words, you can't use or sell the goods for what you bought them for. Then you may refuse the goods or terminate, which means ending the contract (art. 610).

You terminate by notice, and the contract ends when the notice reaches the supplier (art. 565). You can then claim back what you paid, plus damages (art. 566). From then on, the risk of the goods being damaged or lost stays with the supplier (art. 610).

Whatever remedy you choose, you can also claim other losses the defects caused, such as testing costs and extra freight (art. 583). Damages can include lost profit, up to what the supplier foresaw, or should have foreseen, when the contract was signed (art. 584).

Taking a price cut

A price cut should match the real loss in value. The Supreme People's Court (SPC) is China's top court. Under its rules, the cut can be measured by comparing two market values at delivery. One is the value of goods that meet the contract. The other is the value of the goods delivered. If you have already paid, you can claim back the difference (SPC Interpretation on Sales Contracts, art. 17). Test the supplier's offer against that measure.

In a published case, a company complained in writing about black spots and pulled threads in fabric it had bought. The contract ruled out black spots and weaving flaws. When the seller sued for the unpaid price, the buyer asked for a price cut. On appeal, the Shaoxing Intermediate People's Court allowed it. Still, the court limited the cut. One reason was that the buyer went on cutting the faulty fabric into finished goods after complaining, which made the loss bigger (Civil Code art. 591). The buyer ended up owing roughly a tenth less than the seller claimed ((2025) Zhe 06 Min Zhong No. 2996). Once you complain, stop using the faulty goods.

The notice deadline

All of this depends on telling the supplier in time.

• If the contract sets an inspection period, notify defects within it. If you don't, the goods are treated as meeting the contract (art. 621).
• If there is no agreed period, inspect promptly (art. 620). Then notify within a reasonable time after you found, or should have found, the defect. The outer limit is two years from receipt, unless a quality guarantee period (a warranty period) applies (art. 621).
• An agreed period too short for a full inspection, given the goods and trade practice, counts only for visible defects (art. 622).
• If the supplier knew or should have known the goods were defective, these deadlines don't apply (art. 621).

What your contract can settle

Art. 582 applies only where the contract is silent or unclear. So you can agree the remedies before anything goes wrong. In a manufacturing agreement, I would cover three points:

• Who chooses. Say the buyer may choose repair, replacement, return with a full refund, or a price cut.
• Return logistics. Say who collects defective goods, who pays the freight both ways and who pays for testing.
• Timing. Set a deadline for replacement goods, and say what happens if it is missed.

My sample marked-up terms include quality and inspection wording you can adapt.

What to do now

1. Give written notice. Include the order number, photos, any test results and how many units are affected. Send it as soon as you find the defect.
2. Say which remedy you want, and why it fits. If the goods are unusable, say so, and say you are refusing them or ending the contract.
3. Don't accept the discount by accident. If you agree to it in writing, the supplier will say the claim is settled.

If the CISG applies

The CISG is the UN convention on international sales, and China has joined it. It applies when both sides are based in countries that have joined it, unless the contract excludes it (CISG arts. 1(1)(a) and 6). Its rules on the bigger remedies are stricter. Replacement goods, and avoidance (the CISG term for ending the contract), need a fundamental breach. That is a breach that substantially deprives you of what you were entitled to expect (arts. 25, 46(2) and 49(1)(a)). Otherwise you can ask for repair, unless that is unreasonable, or cut the price in proportion to the lost value (arts. 46(3) and 50).

Have defective goods arrived from a Chinese supplier? Send a short summary and the supplier's Chinese company name. Once I've checked that I don't act for the other side, I'll ask for the contract or order, the payment record and its last message. Photos and any test report help too. I'll tell you where you stand and what your options are. Send a short summary →

Part of my guide to supplier disputes in China.

This article is general information on PRC law. It isn't advice on any particular matter.