Doing business with Chinese companies can be highly rewarding, but collecting unpaid debts presents unique challenges. For U.S. businesses involved in trade with Chinese entities, understanding the legal and procedural options for debt recovery is important.
Initiating legal action
The first step in recovering unpaid debts from Chinese companies is often initiating legal action within China. U.S. businesses must file a lawsuit in Chinese courts because judgments made in the U.S. are not automatically enforceable in China.
Understanding Chinese business law is critical, and Chinese legal counsel can help navigate the country’s complex legal system. Chinese courts generally enforce contracts written in compliance with Chinese laws, so having well-drafted agreements is important.
Enforcing U.S. judgments
Enforcing a U.S. court judgment in China proves difficult due to the lack of a treaty between the two countries that recognizes judgments. In some cases, Chinese courts recognize foreign judgments based on reciprocity. U.S. businesses may need to file a new lawsuit in China and use the U.S. judgment as supporting evidence.
Proper strategy increases the chances of successfully recovering unpaid debt from Chinese companies. This makes it important for U.S. businesses to understand the legal frameworks of both Chinese and U.S. business law and the options available to protect their financial interests.
Arbitration as an alternative
Many U.S. businesses prefer arbitration to resolve disputes with Chinese companies. Arbitration offers a faster, more flexible process. Because China is a signatory to the New York Convention, arbitration awards are enforceable across borders. Including an arbitration clause in contracts with Chinese companies creates a smoother path to debt recovery.
Planning for debt recovery
To recover unpaid debts from Chinese companies, U.S. businesses need to employ thoughtful strategies that align with the complexities of international trade. By taking a proactive approach, companies can enhance their chances of securing the payments they are owed.