In China, the only formal way to force a debtor to pay his outstanding debts is through litigation (or arbitration). While never easy, debt collection disputes are much easier to manage with the right approach.
But, as the procedure can be costly and time consuming, it is advisable to evaluate the profitability of the case by comparing the size of the debt with the litigation costs, and the chance that the case can be won and enforced. In particular, it is important to ensure the availability of documentary evidence; this will play a key role in a legal dispute.
Please notice, there is no set time limit for a Chinese court to deal with cases involving a foreign party, but it usually takes 6-12 months to get a first instance judgment. Rulings from a foreign court are rarely enforced in China; it is therefore inadvisable to include a jurisdiction agreement for European or American courts in the contract.
The litigation procedure consists of the following steps:
- Lawyer’s demand letter
- Securing assets
- Enforcement of judgement
Debt collection cases rely heavily on documentary evidence. Having the right documents in the right forms is therefore crucial. However, the rules on the format of evidences that can be accepted are very strict – especially for foreign parties.
Photocopies, reproductions and simple printouts of documents can be easily falsified, and will have very little evidentiary value in Chinese court of law. For example, parties should ideally keep the original contract (i.e. with the original stamp of the Chinese customer or supplier).
Download the full Debt Collection in China guide here.