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How to Recover and Collect Debt in China

Definitely, it is much better to prevent bad debt in advance instead of collecting international receivables later in a foreign country. You should try your best to investigate the credit status of your trade partners before you sign contracts, deliver goods or make remittance. For some transactions with considerable amount, you had better retain a local business service company to thoroughly check the background, check the quality, arrange shipment, supervise the loading process and even offer afte-sales services etc.

In case unfortunately you suffer bad debt in China, do not hesitate and naively hope the debtor will pay kindly and voluntarily, which will waste you valuable time to effectively collect the debt. Actually, as far as the international debt collection is concerned, the longer the account receivable lasts, the more difficult to successfully collect it. According to the statistics, the success rate of collecting internationally debt which has been overdue for 1 year is no more than 60%; and less than 40% for the debt overdue for 2 years. In addition, the longer the debt last, the debtor will be more reluctant to pay. Possibly it is instinct of human beings. So if you are confronted with bad debt, you should take actions as soon as possible.

Obviously, it is a tough job to collect debt in a foreign country. You need to retain or hire professionals to help you. Please note that in China debt collection agencies are prohibited. You have to retain a local qualified lawyer to help you. In China, most lawyers provide legal services on a basis of flat fee. Usually Chinese lawyers charge a fixed fee in accordance with the regulation issued by judicial and price authorities. Some lawyers who handle international cases charge client for their services on a hourly rate. For comparatively big cases, some Chinese lawyers could handle cases on a contingency fee basis. In China, the contingency feeon a basis of flat fee. Usually Chinese lawyers charge a fixed fee in accordance with the regulation issued by judicial and price authorities. Some lawyers who handle international cases charge client for their services on a hourly rate. For comparatively big cases, some Chinese lawyers could handle cases on a contingency fee basis.In China,the contingency fee (commission) rate should not exceed 30%. 

So taking any legal action will cost you lot of time and money, some clients would like to try Official Assistance first with a Case-Report service from local experts, this service costs you only several hundred USD sometimes.

Compared with other countries, the lawyer fee in China is not cheap. Additionally, the court fee is much higher than that of western countries; the court charge a certain percent of the disputed value. So the creditor should consider the potential lawyer fee and court fee before initiating international commercial litigation. For some small cases, you could entrust a local lawyer to negotiate with the debtor; sometime compromise is necessary, particularly you yourself has faults in the dispute. The foreign creditor could also consider other alternative ways. Say, if the case fact is clear and definite, and the evidence is adequate, you could publicize the case on Internet. Hopefully, the debtor will "voluntarily" pay you taking into account their business reputation. Sure, you should be careful with this measure. Otherwise, you could be liable for slander.

If the debtor committed business scam, you could report the case to Chinese local police and ask them to commence criminal investigation procedure. If the debtor concern their possible criminal liabilities, hopefully, they would "voluntarily" pay you; and the police will wrap up the case as a commercial dispute. If the debtor refuse to pay, they are still obigated to return the goods they cheated and compensate your losses even if they are sentenced to prison.

Should you decide to take legal actions, you need first check whether there is arbitration clauses in the contracts. If there exists an effective arbitration clause, you have to submit the case to the agreed arbitration tribunal; if not, you can file lawsuit against the debtor. The writer strongly recommends you should initiate litigation in China. If you file lawsuit in your own country, even if you get a win judgement, you have to apply to a competent Chinese court for recognition and enforcement, which is inevitably complex and time-consuming. In China, a case will be heard the most by two instances; and the judgement delivered by the appeal court will take effect immediately. If the debtor refuse to perform the effective judgement, you could apply to the trial court (first instance) for enforcement. Generally speaking, an international commercial case could last 1-2 years.If the case is big enough, the victim should come to China and report the case to local police station and officials in person. Normally they should book a professional Biz Guide service before their departure to China if they'd like to save more time and cost.

Author: Mr. Shen, a professional lawyer from Shanghai

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