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What makes debt collection difficult in China

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  • Hai Yang
    Dear listmates, There are a combination of reasons that makes debt collection difficult in China. And the article below shares the information. Hope it helps.
    Message 1 of 1 , Oct 31, 2008
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      Dear listmates,

      There are a combination of reasons that makes debt collection difficult in China. And the article below shares the information. Hope it helps.

      1. Short statutory limitation period

      Your debtor probably knows that the statutory limitation period for debt collection is 2 years. All they need to do is to drag and drag and drag and very soon, they do not need to pay under the law. All jurisdiction has statutory limitation period but they are much longer period than the case in China.

      2. Long and slow distribution chain

      Because the distribution chain is long and slow, funds are tied up in stock. Your distributors and agents may not have the spare cash to pay you. They may still pay you at the end of the day but your account receivables as a whole will be very huge. Hence, we can see solving debt problem is not just on collection. Changing the structure of distribution chain can be helpful

      3. The use of proxy company to sign contract

      Before China opens up, the only type of enterprise in China is state-owned enterprise. China has been struggling very hard on trying to put the concept of private owned company with the theories of communism. For years, the Chinese government does not know how to deal with private bosses. Private bosses are allowed to apply for a business license under the sole proprietor scheme. However, it is impossible for a businessman to present himself or herself as a sole proprietor to the business world. At the same time, many companies in China are not competitive enough to engage in businesses. In order the make some money and increase on-paper revenue, a company allows private businessmen to represent themselves as employees of the company. The businessmen will pay a fee to the company but the businessmen are actually the beneficiaries of the business. When a businessman run away with the goods, the proxy company who is the legal party to the contract the businessman signed with the creditor has to face the creditor.

      Since the proxy company never enjoys the benefits of the contract, they will definitely fight till the very last. The proxy company is unlikely to win because they are not actually proxy in law. However, prolong litigation means greater recovery cost and sometimes, it deters creditors to sue or forces the creditors to accept a cut-throat deal.

      4. Debtor has their own in-house lawyer to represent themselves.

      (Source: http://www.abailaw.com/english/debt/debtor-lawyer.htm)

      Best regards,
      Crystal Kong
      Consultant of International Department

      SBCS President: Hai YANG



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