Chinese Supplier Sent Defective Goods: Refund, Replacement, or Compensation?

Finding the right Chinese supplier may already have taken weeks or months: comparing quotations, approving samples, confirming specifications and production details, then waiting through production and international transit. When the goods are finally delivered to you or your warehouse, inspection reveals the problem. For example, the failure rate is 16% against a 2.5% contractual limit. Some units do not power on, while others differ from the approved sample. Your Chinese supplier says the goods passed inspection before shipment and offers a discount on the next order, not a refund now.

At this point, do not start by arguing about blame. First protect the evidence and deadlines you will need for negotiation, a refund, or compensation. Preserve the goods and the original digital records, identify the quality promise that was broken, and notify the supplier before the shortest applicable deadline expires. If the order used Alibaba, open the platform route in parallel. You can then decide whether repair, replacement, a price reduction, a refund, or compensation makes commercial sense.

First identify what actually went wrong

“Defective goods” is a broad label. The type of problem determines who may be responsible and whether you should ask for a refund, replacement, or compensation:

• Manufacturing non-conformity: the goods fail the contract, specification, approved sample, drawing, bill of materials, testing protocol, or stated standard.
• Wrong goods: the model, material, dimensions, quantity, color, labeling, firmware, or packaging differs from the order.
• Transit damage: the goods may have conformed when handed to the carrier but were damaged later. The Incoterm, shipping documents, insurance, packaging obligation, and inspection record become central.
• Latent defect: the problem appears only after installation, stress testing, use, or resale. The warranty and the distinction between apparent and hidden defects matter.
• Unsafe product: the defect causes injury or damage to property other than the defective goods themselves. That can create a product-liability track in addition to the contract claim.

Under Articles 615 to 617PRC Civil Code - Articles 615-617The seller must deliver goods meeting the agreed quality requirements and its own quality description. Non-conforming delivery can support contractual remedies under Articles 582-584.Official text - SPC ↗  of the PRC Civil Code, the seller must deliver goods that meet the agreed quality requirements and any quality description it provided. That makes the signed contract, purchase order, proforma invoice, specification, drawing, approved sample, platform order, and accepted testing method the starting point.

If the documents only say “good quality,” the quality requirement is less precise, but that does not automatically prevent a claim. Articles 510, 511, and 616PRC Civil Code - Articles 510-511 and 616Unclear quality terms may be determined by a supplemental agreement, related contract terms, trade usage, national or industry standards, or the usual or contract-purpose standard.Official text - SPC ↗  provide a hierarchy for filling unclear quality terms: supplemental agreement, related contract terms or trade usage, then applicable national, industry, usual, or contract-purpose standards. If the CISG appliesUnited Nations Commission on International Trade LawUnited Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980) (CISG) | United Nations Commission on International Trade LawDate of adoption: 11 April 1980 Entry into force: 1 January 1988 Purpose The purpose of the CISG is to provide a modern, uniform and fair regime for contracts …uncitral.un.org↗, Article 35 also looks at contractual description and packaging, ordinary fitness, a disclosed particular purpose, and samples or models.

An unsafe product cannot be handled as an ordinary quality dispute alone. Articles 41 and 46PRC Product Quality Law - Articles 41 and 46A producer may be liable when a product defect causes personal injury or damage to property other than the defective product; statutory defenses and a safety-based definition of defect apply.Official text - SAMR ↗  of the Product Quality Law address personal injury and damage to property other than the defective product itself. Stop distribution and obtain product-safety advice promptly if that is your situation. The rest of this article focuses on the B2B contract loss caused by non-conforming goods.

Preserve evidence before the goods or either side’s account changes

Your materials need to show four things: what was promised, what was delivered, when and how the defect was discovered, and what loss followed.

Preserve at least:

• the contract, purchase order, PI, Alibaba order, specifications, drawings, approved samples, inspection protocol, warranty, and amendments;
• payment records and the supplier’s full registered Chinese company name;
• the complete email, WeChat, WhatsApp, and platform threads, including account identity, timestamps, attachments, and surrounding messages;
• arrival condition, seals, container and carton numbers, labels, batch or serial numbers, packaging, and storage conditions;
• an inspection plan showing the population, sampling method, sample size, test equipment, pass/fail criteria, raw results, and defect classification;
• dated photos and continuous video that show both product identity and the test being performed;
• representative defective and conforming samples, segregated and labeled under controlled storage; and
• freight, customs, inspection, rework, replacement sourcing, customer chargeback, and disposal documents as the loss develops.

A third-party report is not useful merely because it is signed or stamped. Another person should be able to reproduce its logic. “18% defective” is weak without the sample basis, test method, acceptance threshold, and observed failures. For technical goods, ask the inspector to identify the contractual clause or standard behind each conclusion and preserve the underlying data.

Do not rely on screenshots alone when the original account or device remains available. Under the SPC’s civil evidence rules, electronic data includes platform records, email, instant messages, transaction records, documents, photos, audio, and video ; the proponent should provide the original or a qualifying output derived directly from it. The practical guide to evidence that holds up in a China dispute explains how to keep the source, context, and chain of custody.

Do not destroy, sell, return, or let the supplier rework every defective unit before preserving representative samples. Those actions may be commercially sensible later, but they can also remove the best evidence and make an independent retest impossible.

A notice deadline may decide the outcome before anyone reaches the merits

There is no universal “48-hour rule.” There may instead be several clocks:

1. the inspection and rejection period in the contract, PI, purchase order, or platform order;
2. a warranty period for latent defects;
3. the Alibaba or other platform claim window;
4. a notice rule under the governing law, including the CISG where applicable; and
5. the limitation period for filing arbitration or litigation.

These deadlines serve different purposes. A four-year filing period does not give you four years to inspect the goods and tell the supplier about the problem.

Under Articles 620 to 623PRC Civil Code - Articles 620-623The buyer must inspect and notify within the agreed period or, if none, promptly and within a reasonable time. Special rules address latent defects, seller knowledge, overly short periods, and signed delivery records.Official text - SPC ↗  of the Civil Code, a buyer should inspect within the agreed period, or promptly if no period was agreed, and notify the seller of quantity or quality non-conformity on time. Without an agreed inspection period, notice is due within a reasonable time after the buyer discovered or should have discovered the problem, subject to the statutory structure for warranties and the two-year outer notice point . Do not treat that two-year point as permission to wait. A seller that knew or should have known of the non-conformity cannot rely on the Article 621 notice limits.

Two qualifications matter. First, an agreed period that is too short for a comprehensive inspection, considering the goods and trade practice, may count only for apparent defects. Second, a signed delivery note listing quantity, model, or specifications can create a rebuttable presumption that quantity and apparent defects were inspected when no inspection period was agreed. Signing “received in good order” without a reservation can therefore create avoidable evidence problems.

The CISG is similarly strict. Articles 38 to 40 require examination as soon as practicable in the circumstances and notice that specifies the nature of the non-conformity within a reasonable time. The CISG also has a two-year outer notice limit, unless inconsistent with a contractual guarantee, and a seller-knowledge exception. Applicability must be checked from the parties’ places of business, the contract, any exclusion, and the governing-law analysis.

Send a specific written notice even if testing is still continuing. Identify the order, shipment, affected products and batches, observed failure modes, discovery date, current test basis, and contractual requirement. Attach enough evidence to make the complaint specific, state that testing continues, and reserve all remedies. Use every contractually recognized channel and preserve proof that the supplier’s correct legal entity received it.

Match the requested solution to the seriousness of the defect

The law may allow several responses, but the right demand for your business depends on how serious the defect is and whether the goods can still be used, repaired, replaced, or sold safely.

Under Articles 577 and 582 to 584PRC Civil Code - Articles 577 and 582-584For non-conforming performance, the injured party may seek agreed remedies or reasonably select repair, rework, replacement, return, or price reduction, plus qualifying losses.Official text - SPC ↗  of the Civil Code, non-conforming performance may support continued performance, remedial measures, or damages. If the contract does not settle the remedy, the injured party may reasonably select repair, rework, replacement, return, or a price reduction based on the nature of the goods and the loss. Additional losses may be claimed if they are caused by the breach, proven, and within the foreseeability limit.

Use the remedy that solves the actual commercial problem:

A defect does not automatically entitle the buyer to a full refund. Articles 610, 632, and 633PRC Civil Code - Articles 610, 632, and 633The buyer may reject or terminate when quality non-conformity defeats the contract purpose. Partial goods and instalment deliveries are treated according to the affected scope and interdependence.Official text - SPC ↗  tie rejection or termination to whether the quality problem defeats the contract purpose and, for partial or instalment deliveries, whether the affected goods can sensibly be separated. If 400 of 10,000 ordinary components are replaceable, the proportionate remedy may target those units. If an undisclosed material makes the entire finished product illegal or unusable in the destination market, the argument for rejection or termination is much stronger.

The CISG draws a similar line through the concept of “fundamental breach .” Under Articles 46, 49, 50, and 51, replacement goods and contract avoidance require more than repair or a proportionate price reduction. A buyer that declares avoidance must also comply with notice and timing requirements. Do not casually announce that the order is “cancelled” or the contract “terminated”: choosing an inconsistent response or disposing of the goods can narrow later options.

An Alibaba claim and a China contract claim are different tracks

If the order was placed and paid through Alibaba Trade Assurance, preserve the online order, all in-platform communications, the product page as ordered, inspection evidence, logistics records, and payment route. Do not move the negotiation off-platform while the claim window runs.

Alibaba’s current Money-back Policytradeassurance.alibaba.comTrade Assurance protects your Alibaba.com ordersTrade Assurance protects your Alibaba.com orderstradeassurance.alibaba.com↗ advertises refunds for orders that are missing or arrive defective, incorrect, or damaged. Its standard page currently states 30 days from delivery, or 60 days for Enterprise and Enterprise Pro buyers. Easy Return has separate order-value, country, product, and eligibility conditions. Check the live order and current terms rather than assuming every purchase receives the same protection.

Open the platform claim before the deadline if the supplier has not agreed and performed a reliable cure. Upload evidence that maps the defect to the online order’s exact quality requirement. A private inspection standard that never appeared in the online order may be difficult to enforce through the platform.

Trade Assurance does not replace the underlying contract claim. Alibaba handles the platform complaint under its current rules, while a court or arbitral tribunal applies the contract and governing law. A platform settlement or refund can also reduce or release what remains for a later claim, so read the settlement terms before accepting them.

Define the request before sending a formal demand

A demand letter works best after you have identified the right company, organized the evidence, chosen the requested solution, checked the deadline, and confirmed the dispute forum. Sending one too early can lock you into the wrong explanation of the defect or demand a full refund before you know whether ending the contract is available.

Address the letter to the supplier’s registered Chinese entity, not only an English trading name or salesperson. It should:

• identify the contract, order, shipment, affected goods, and chronology;
• state the promised requirement and the evidence of non-conformity;
• record when and how notice was first given;
• demand one defined remedy, with any alternative stated clearly;
• set a realistic performance deadline and the mechanics for cure, return, or payment;
• reserve recoverable losses and require preservation of relevant production and QC records; and
• identify the agreed arbitration or litigation route without threatening a forum you cannot use.

Under Articles 195 and 594PRC Civil Code - Articles 195 and 594A right holder's request for performance can interrupt limitation, and PRC law provides a four-year limitation period for international sale-of-goods contract disputes.Official text - SPC ↗  of the Civil Code, a provable request for performance can interrupt the limitation period, and international sale-of-goods contract disputes have a four-year filing limitation under PRC law . But a demand letter does not revive a missed inspection notice, extend an Alibaba deadline, or automatically terminate the contract. Keep evidence that the correct obligor received the demand and check which law governs limitation.

Where the claim and remedy are already clear, a bilingual Chinese supplier demand letter can test whether the dispute can be resolved without filing. It is one step in the sequence, not a substitute for evidence or a usable dispute clause.

If the supplier refuses, follow the contract and control the loss

Read the dispute-resolution clause before choosing the next move. It may name a Chinese court, CIETAC, another arbitral institution, or an overseas forum. A vague clause may require validity analysis. Under Article 507PRC Civil Code - Article 507A contract's dispute-resolution clause is not invalidated merely because the contract is ineffective, rescinded, or terminated.Official text - SPC ↗ , the agreed dispute-resolution clause generally survives the contract becoming ineffective, rescinded, or terminated.

If the clause validly selects CIETAC, its 2024 Rules generally apply the summary procedure when the amount in dispute does not exceed RMB 5 million unless the parties agreed otherwise. A larger claim can also use that procedure if the required agreement is obtained. That threshold says nothing about whether filing is economical: compare the recoverable amount, evidence, supplier assets, fees, interim-measure needs, and likely enforcement path.

At the same time, take reasonable steps to stop the loss from growing. Article 591PRC Civil Code - Article 591After breach, the other party must take appropriate steps to prevent avoidable loss from expanding; reasonable mitigation expenses may be borne by the breaching party.Official text - SPC ↗  requires appropriate steps to prevent avoidable loss from expanding; the CISG’s Article 77 follows the same principle. Obtain replacement quotations, segregate unsafe stock, prevent further customer exposure, and document why the chosen response was reasonable. Do not continue accumulating losses merely to increase the claim.

Any settlement should specify money, currency, payment account, replacement quantity, inspection, deadlines, freight, customs, disposal, confidentiality if needed, and what happens on default. Tie any release to completed payment or accepted replacement, not to a future promise.

Do not let avoidable mistakes weaken an otherwise strong claim

Do not wait past a deadline. The supplier’s internal investigation does not stop an inspection, notice, platform, arbitration, or litigation deadline. Send a specific notice and preserve the platform route while discussions continue.

Make the notice and testing specific. Do not send only “quality is bad,” test an unrepresentative sample, or change the method after seeing the result. Identify the failed requirement, affected batch, sampling basis, test method, and observed failures.

Preserve samples before handling the goods. Keep representative defective and conforming units before returning, reworking, selling, or destroying the stock. Also consider what a signed delivery note may show about quantity and apparent defects.

Match the demand to the seriousness of the problem. A limited, curable defect may not justify cancelling the whole order. Before withholding a balance or demanding a full refund, check the contract, the commercial purpose of the goods, and the available legal basis.

Do not release the remaining claims before the supplier performs. If you accept a replacement, partial payment, or future promise, state what remains reserved and make any release effective only after payment or accepted replacement.

Identify the right company and use the right forum. The contracting Chinese entity, not merely a salesperson, storefront, or English brand, should receive the notice and demand. Alibaba discussions do not replace the notice or dispute procedure required by the contract and applicable law.

The order of action matters. Preserve the goods and original records, identify the quality requirement that was broken, and send a specific notice before the shortest relevant deadline. Those steps make later negotiation, refund, or compensation requests easier to explain and prove.

Then choose a solution that fits the actual problem. Repair, replacement, a price reduction, or compensation may resolve a limited defect; rejection, termination, and a full refund require stronger facts showing that the goods no longer serve the contract’s purpose. If Alibaba applies, preserve that route in parallel. If the supplier still refuses a workable solution, use a properly defined demand and the agreed arbitration or litigation process while continuing to limit the loss.

For a fact-specific review, gather the contract or PI, online order, supplier’s registered Chinese name, quality documents, inspection data, complete communications, payment and shipping records, samples, and your loss schedule. Then contact me to assess the available remedy and dispute route.

References

This is Part 1 of the China Supply Chain Disputes - What Every Buyer Should Know series. Next: The Contract Clause You Ignored Could Cost You Everything. Related reading: Quality Inspection in China, Product Acceptance in China, and Chinese Supplier Refuses to Refund.