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International

28-02-2019

A Guide to Debt Collection in China

Introduction

Debt collection cases are among the most common types of litigation and play a key role in the Chinese legal system. This article provides the basic information necessary to confidently approach debt collection disputes in China.

Before the start of the procedure

Given the time-consuming and often costly nature of litigation procedures, it’s advisable to carefully evaluate the potential effectiveness and profitability of a debt collection procedure. This includes: comparing the size of the debt with the litigation costs, verifying the availability and accuracy of documentation that can serve as proof, and checking the temporal require-ments of Chinese courts. For litigation cases involving a foreign party, there is no limit by which the court must give judgment. Therefore these kinds of cases usually take up to 6 months to 1 year in the first instance. 

With regard to the size of the claim, it’s good to keep in mind that the court can order the de-fendant to pay the debt with the addition of an interest rate which is equal to the loan rate set by the People’s 
Bank of China (4.35 – 4.90%)  and a fine.

First instance cases  of a debt collection procedure, involving a foreign party will in most cas-es be dealt with by one of the 'Intermediate courts', which often have more experience with disputes involving a foreign party than the 'Local courts'. Some foreign parties choose to have legal cases handled by a foreign court as a ruling court in case of a civil dispute, but this is not advisable, because rulings of a foreign court can in general not be enforced in China, or only with difficulty.

The procedure

After deciding to take legal steps to collect a debt, the first step is the filing of a lawyer’s letter to notify the non-performing party of the situation. In this letter, the counterparty is informed of the intention to conduct a legal procedure, accompanied by a last request to pay the out-standing debts.

Once in court, if a request is made for the seizure of another party’s assets, according to Chinese law, it can only be obtained if a security deposit is provided, to cover the costs in case of an undue seizure.  It’s worth noting that there are service companies that could pro-vide these security deposits for payment of losses, following an undue seizure. These com-panies will require a proportionate service fee, which is usually very reasonable. Chinese courts are used to working with these kinds of parties

Evidence in the form of documentation is the key to success for debt collection in Chinese courts‘ proceedings. Chinese courts rely heavily on documentary evidence and rules on their submission can be strict. The most common strategy is that in legal proceedings the Chinese counterpart will deny or misrepresent all facts and documents which are not supported by the original documentary evidence. In general, judges mistrust lawyer’s statements and rely on documentary evidence. It is therefore vital to gather the right documents, in the right form, and to use them in the legal procedure. Following are a few of the requirements and guide-lines for submission and evidence:

  • Documentary evidence shall be presented in its original form. Any photocopy or reproduc-tion that cannot be verified against the original document or item shall not be used.
  • All foreign documents such as IP registrations, share certificates, company registrations, contracts etc. shall be certified by a notary’s office of the country of origin, legalized by the Chinese embassy and accompanied by a Chinese translation. 
  • E-mail, Skype, WeChat and other IT correspondence shall be notarized by a public notary office or shown directly on a computer screen.
  • All documentation should be signed and stamped with the official company seal, although other options for further verification are available if these requirements are not met. 

It is interesting to note that Chinese judges will provide their personal mobile phone number to the lawyers of both parties. This allows parties to personally verify with the judges the rel-evance and suitability of the submitted documentation. 

Conclusion

When it comes to debt collection in China several key points should be considered. Firstly, a careful legal evaluation of the specific circumstances of each case will be essential in deter-mining the feasibility and profitability of such a procedure, which can be long and expensive. Secondly, it is of the utmost importance that the documentation is complete and submitted in the correct form. Many foreign parties do not realize that preparation of this part of the debt collection often means the difference between winning or losing the case. The opportunity to contact the judges on the case should also be used since they often provide practical and useful advice. Debt collection in China will still not be simple but Chinese courts have made noticeable improvements in recent years and fortunately local interests play an ever less im-portant role in straight forward commercial disputes, especially in first and second tier cities. 

Please click here to download the full guide.

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Key contacts

Jan Holthuis

Partner | Lawyer
Send me an e-mail
+86 21 61730388

Li Jiao

Partner | Lawyer
Send me an e-mail
+86 21 60836813

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