The Punchline Up Front
Tom wired the money on Friday. By Monday, the factory had registered a near clone of his mark in a subclass he had never checked. It then threatened to keep shipping under “their” brand. The brand he bought showed four million dollars in trailing Amazon revenue. He paid 0.6x and felt clever.
He was right about the steal. He was wrong about who had done the stealing.
The problem wasn’t buying a Chinese brand. It was buying a story while the legal infrastructure, including trademark recordals (the official filings that transfer ownership), supply agreements, and tooling rights, sat in someone else’s hands.
Our China lawyers get monthly calls involving some variation on the above. This keeps happening because the Western M&A playbook (and your typical domestic M&A lawyer) does not map to China reality. The gap between “we signed” and “we control” is where fortunes disappear.
After many years fixing these deals and structuring the ones that work, here’s the hard truth: buying a Chinese brand without the factory can be a great move, but only if you accept that you are not buying a company. You’re buying three locks, and you need all three keys to go with that.
Why This Wave Is Happening Now
Chinese manufacturers are in a squeeze. Tariffs increased their costs. COVID exposed their fragility. Domestic competition has intensified. Many factories built brands on the side. Those brands, with their five-star Amazon reviews, their retail placements, and their SEO gravity have often turned out to be more valuable than the plants.
Foreign acquirers see the spread. Buy market share at 0.4x to 1.2x revenue without inheriting headcount, real estate, or local compliance. Buy the cash flow and the relationships, not the machines and the leases. The constraint is not capital. It is control.
You are acquiring three things: the intellectual property, the supply chain, and the distribution channels. Miss any one and you are buying air.
The Three Locks Framework: Deep Dive into Control
Think of a vault with three separate locks, held by different parties, in different jurisdictions, under different rules.
Lock One: The Brand (Intellectual Property)
In China, the registration is the brand: what the China National Intellectual Property Administration (CNIPA) lists is what you can enforce. Not your purchase agreement. Not a representation in a term sheet. For a deeper dive on securing trademarks in China, see China Trademark Registration: How to Stop Squatters from Stealing Your Brand.
Where China brand buyers get burned:
The mark sits with the founder’s cousin, not the selling entity.
The brand covers one class while half the SKUs live in an uncovered class.
Assignments get signed but never recorded with CNIPA.
The Chinese name (the one courts and consumers use) was never filed.
Amazon Brand Registry still lists a departed employee as the brand administrator.
Tom’s real cost was that his Chinese seller owned the English mark in the right class. The factory had quietly registered the Chinese transliteration in an adjacent class that covered forty percent of the catalog, two years before the sale. The trap door was prebuilt. His options were all expensive: rebrand, sue, or pay a “license” fee. He chose to spend six months and close to one hundred thousand dollars repairing the IP foundation, and then relaunched. His 0.6x deal became 1.0x, and he lost a year.
The key is to pull every variant—English, characters, transliterations, phonetics. Check every subclass that could touch your products, plus the adjacent ones. Confirm that the selling entity on your purchase agreement is the recorded CNIPA owner. Plan the assignment and recordal as a deployment, with specific dates, holdbacks, and verification steps.
Lock Two: The Supply Chain (Manufacturing Control)
Buying the brand without the factory works only if your supply relationship is enforceable where the factory lives. The common bet that “they will keep supplying us because who else will they supply?” fails about half the time.
What actually happens is that you close, send a purchase order, and the factory declares the old pricing “special” and off the table. Or it asserts ownership over tooling. Or it claims it never received payment authorization from the new owner. Meanwhile, Amazon inventory drains and the factory calculates its leverage.
Clean deals share a pattern. They typically have a direct, China-enforceable manufacturing agreement with the actual factory entity, signed at closing. It sets price mechanics, lead times, quality standards, inspection rights, tooling ownership and removal rights, and remedies. It includes non-manufacture and non-sale covenants tied to revenue-based liquidated damages, with disputes in the China International Economic and Trade Arbitration Commission (CIETAC) or a Chinese court. See How to Avoid China Manufacturing Problems: A Primer.
Mind the payment trap: many brands pay through a Hong Kong company. If your contract is with a Shenzhen factory but you pay a Hong Kong trader with no contractual ties to Shenzhen, the factory can plausibly claim nonpayment. Close the loop with a simple acknowledgment that payments to the Hong Kong account discharge obligations under the manufacturing agreement. See China Contract Templates and Getting your China Counterparty Right.
Fapiao and Payment Reality
In China, an official value added tax (VAT) invoice, or fapiao, is not a receipt. It is the tax record that the seller performed the taxable supply. If production routes through a Hong Kong trading company while your contract is with a Shenzhen factory, the mainland factory may refuse shipment or warranty without a corresponding fapiao, and you will not have a VAT credit. Align contract parties and cash flows, and require fapiao issuance that matches your supply chain.
Suggested clause: Buyer will make payments to [HK Trading Co.] under account [####]. [Shenzhen Factory Co.] acknowledges that payments to [HK Trading Co.] fully discharge Buyer’s obligations for Goods under this Agreement. [Shenzhen Factory Co.] shall cause valid VAT fapiao to be issued to Buyer reflecting the Goods and amounts paid within [X] days of payment.
Due diligence adds: Confirm who issues the fapiao for each shipment and that the issuing entity matches the supplying factory. Validate VAT status and invoice capability of the issuing entity; obtain a sample fapiao. Map the Hong Kong to mainland flow and confirm contractual acknowledgment of payment discharge plus fapiao timing.
Lock Three: The Distribution Channels
If you cannot sell under the brand, you do not own a business. This lock covers Amazon Brand Registry, domains (including .cn and .com.cn), social accounts inside and outside China, email domains, review history, and retail distributor agreements. Amazon is the operational nexus; control here is paramount.
This all breaks down when the Amazon Brand Registry remains tied to a former employee’s email; the seller tweaks listings during diligence and trips fraud detection; a bumbled Amazon transfer sequence freezes your account; you change the email domain mid transfer and land in verification limbo.
Amazon control comes down to three steps
Pre signing freeze: export Seller Central data and freeze catalog and ads during diligence.
Dual administrator control: at signing, add co administrators to Brand Registry and Seller Central and keep the seller until funds clear and access is verified.
Transfer discipline: follow Amazon’s documented steps, keep the email domain stable, secure domain transfer codes, and complete social account transfers.”
The Structures That Actually Work
Successful China brand deals use staged payments tied to objective milestones. Use asset purchases where possible and list every asset by registration number, subclass, and jurisdiction. If it isn’t listed, you don’t own it. Park the trademarks in a dedicated IP holding company and license them to the operating entity.
Split the paperwork by purpose and forum. Keep the main purchase agreement under your home law, perhaps with disputes resolved by arbitration. Put the IP assignments and the manufacturing agreement in Chinese, under Chinese law, with Chinese dispute forums. Then stage the consideration.
Staged Consideration: A Working Model
40 percent at signing against executed CNIPA assignment filings and a signed China‑enforceable manufacturing agreement.
30 percent at CNIPA acceptance of the assignments and completion of Amazon Brand Registry transfer.
20 percent on delivery of the first purchase order under the new terms and on‑site verification of tooling.
10 percent in escrow for six to twelve months against undisclosed liabilities or IP defects.
If a seller refuses milestones, you just learned something useful.
The 90-Day Timeline That Prevents Disasters
Weeks 0–2: pull full CNIPA files for every variant; verify the recorded owner matches the seller; map subclass gaps and related-party filings; freeze Amazon changes and export data; confirm the legal identity and address of the factory; map payment flows including Hong Kong intermediaries. Deliverable: a short memo with the real risks and fix costs.
Weeks 2–4: sign the main purchase agreement; sign bilingual China-law IP assignments; sign the China-enforceable manufacturing agreement; submit CNIPA recordals; add co-admins to Amazon; obtain domain transfer codes; audit tooling on site and tag it. Deliverable: everything signed, filings submitted, dual admin access in place.
Weeks 4–8: receive CNIPA acceptance receipts; complete Brand Registry transfer; record the marks with China Customs; transfer domains and social accounts; issue the first PO under the new terms; inspect first production; then remove legacy admins. Deliverable: you control IP, supply, and channels. Release the second tranche.
Weeks 8–12: finish transition services; migrate customer service and returns; run parallel production with the second supplier (the “Second Supplier Rule,” meaning you validate and keep a backup manufacturer to maintain leverage); finalize process documentation; track final CNIPA recordal. Deliverable: operational independence. Release escrow on schedule.
China brand acquisition FAQs for buyers
How long does CNIPA recordal take?
Budget two to four weeks for an acceptance receipt and three to six months for final recordal. The receipt is usually enough to act; the recorded owner is the strongest position. Tie holdbacks to acceptance and final recordal.
Can you enforce a non-compete against a Chinese factory?
Yes, if your agreement is in Chinese, under Chinese law, with a Chinese forum, and with specific prohibited acts and revenue-based liquidated damages. See Contract Enforcement in China: What Works and What Doesn’t.
What if the factory stops shipping after closing?
This is why you close only after you have a China-enforceable contract, a ready second supplier, and staged payments. If the factory breaches, you have remedies at home, remedies in China, and an alternative path to inventory.
Do you need Chinese-language agreements?
For IP assignments and manufacturing, generally yes. For the main purchase agreement, keep your home law and language. Split the functions.
What holdback percentage and duration work?
Twenty to thirty percent against milestones plus ten percent escrow for six to twelve months is common. Adjust for seller credit and complexity. The purpose is alignment, not haggling.
Can you skip the second supplier if the factory looks solid?
You can. You’ll regret it when prices jump, lead times double, or priorities shift. A modest trial order with a backup buys leverage at a trivial cost.
What if the seller says my closing conditions are too demanding, and that I’m being overly complicated?
Treat this pushback as a critical data point. The complexity is not yours; it’s a reflection of China’s legal and operational reality. A sophisticated seller already understands the necessary IP and supply chain protocols. If a seller refuses to tie payment milestones to objective actions like CNIPA recordal acceptance or a China-enforceable manufacturing agreement, they are either inexperienced, hiding a defect, or demonstrating a fundamental lack of alignment. It is far cheaper to walk away from a “cheap” deal at this stage than to buy a future lawsuit.
My U.S. lawyer says we can just put everything under Delaware law. Why isn’t that enough for the manufacturing agreement?
A Delaware court judgment has virtually no leverage over a mainland Chinese factory; it has no mechanism to freeze their assets or compel performance in China. To create enforceable control—the kind that moves cash and dictates production—your manufacturing contract must be governed by Chinese law, in Chinese, with a Chinese dispute forum (like CIETAC or a local court). Split the documents: keep the M&A agreement under your home law, and put the levers of control (IP and supply) under Chinese law. See A Guide to Dispute Resolution Clauses in International Contracts and A Guide to Dispute Resolution Clauses in International Contracts, Part 2.
The factory is run by the founder’s extended family. Can I really trust a non-compete will work against them?
You shouldn’t rely on trust; you must rely on enforceable financial deterrence. An emotional non-compete is worthless. A China-enforceable, revenue-based liquidated damages clause is what works. This moves the issue from a dispute about “loyalty” to one about hard liability. See China Contract Damages Done Right.
The seller has a receipt for the tooling, but the factory is holding the molds. How do I prove who owns the tooling?
Ownership is proven by control and access, not by a receipt. Your China-enforceable manufacturing agreement must specifically state you own the tooling (by ID number), you have the right to inspect it, and the factory has a clear, contractually obligated duty to release/transfer it upon request. However, the true lever of control is the Second-Supplier Rule. The fact that you have successfully run a trial order with an alternative factory is the credible threat that forces the current factory to recognize your ownership rights and release the tooling without a fight.
Can Amazon Brand Registry be transferred without losing the listing history and reviews?
Yes, if you plan it. Add co administrators at closing, keep the email domain unchanged during handover, and follow Amazon’s documented ownership change steps. Freeze risky catalog edits during the transfer, export backups from Seller Central, and only remove the seller after access and roles are verified.
What if we discover IP problems during diligence, should we walk or try to fix them?
It depends on cost and time to remediate. Missing subclasses or unrecorded assignments can often be fixed pre closing in about 4 to 8 weeks and for roughly $15,000 to $40,000. Third party conflicting marks, family held registrations the seller will not assign, or factory owned Chinese variants are red flags. Price the fix into your offer or walk. Do not assume you will handle it later.
What if the factory owner is also the seller, does that change anything?
Yes. You lose the natural tension between brand owner and manufacturer. Treat them as separate by signing a carved out, China enforceable manufacturing agreement with Chinese law, a Chinese forum, and revenue based liquidated damages. The second supplier becomes mandatory. Build exit leverage before you close.
Why Buyers Keep Getting It Wrong
Domestic M&A muscle memory. In the United States, you buy the entity and the system protects you. In China, the registration is the brand, the contract only matters if it is enforceable locally, and the seller might not own what you think it owns. Different rules. Winners learn them.
The Opportunity Is Real
We are not saying “don’t buy.” We are saying treat legal control as the price of admission. Own the three keys: IP, supply, and distribution, or don’t close. If you do, you can assemble real market positions at prices that would take years and far more capital to build organically.
The Starting Line: Answering the Five Questions of Control
Before you price the deal, you need clear, evidence backed yes answers to all five. If any answer is unclear, you do not have control.
Who owns the trademark in China? Confirm the recorded CNIPA owner. Verify all necessary subclasses and adjacent goods. Include the Chinese name and any transliterations or phonetics.
Who controls the factory and the cash flow? Identify the actual mainland entity. Map the full payment path, including any Hong Kong intermediary. Close the loop legally and align fapiao issuance with the supply chain.
What gaps exist, and what will they cost to fix? List the IP or contract defects. Estimate time and money to remediate. Tie each fix to a closing milestone and a holdback.
Is the Amazon handover sequenced to avoid freezes? Plan Brand Registry and Seller Central transfer steps. Keep the email domain stable. Freeze risky edits, export backups, and verify roles before removing the seller.
Which closing conditions give you day one control of IP, supply, and distribution? Stage consideration against CNIPA acceptance, a China enforceable manufacturing agreement, verified tooling rights, and confirmed channel access.
If you cannot answer all five with documentation, reset the price or walk.
Key Takeaways
Own the three keys: intellectual property, supply chain control, and distribution access. Do not close until you hold all three.
Registration beats paper: CNIPA records beat a signed purchase agreement.
Local enforceability beats theory: a Chinese language, Chinese law manufacturing agreement with a Chinese forum beats a Delaware judgment.
Leverage beats promises: a prepared second supplier and verified tooling access beat assumptions about loyalty.
Discipline beats risk: plan the Amazon transfer, freeze changes, and verify access before you release funds.
Control beats price: buy the three locks and insist on all three keys.
