In hopes of finding ways to recover funds, this page was created to help victims of bad suppliers understand the full range of options available in China.

Chinese Embassy 

It can’t hurt to contact the Chinese embassy in your country, but keep your expectations realistic. They will likely explain (in varying degrees of politeness) why they are too busy and that you should contact the local police. The number of cases is so large that the embassy and consulates don’t get involved unless the case has political ramifications.

Chinese Police 

Unless your loss is very large, you will find little support from the police in China as they are simply overwhelmed. If you are lucky enough to get their attention, you will be asked to file a report, which must be done in person and in Chinese. That means you fly to China or appoint somebody to represent you.  Be careful when granting a power of attorney!

Your Embassy

Depending on what county you are from, your embassy in China may be a bit more helpful than the Chinese embassy, but do not expect the embassy staff to lead the charge to get your money back. Most of the time they will suggest you contact a local lawyer.

Better Business Bureau 

Unfortunately there is no Better Business Bureau in China where you can take your grievances. That’s the main reason SupplierBlacklist.com was created.

Lawyers 

Here is a great flowchart to help you explore your options and make an educated decision about hiring a lawyer or not.

Click the image below to enlarge.

The following content is intended to serve as general information about legal options in China; it is not legal advice nor intended as legal advice.

How to find an attorney that can help recover money from a bad supplier in China?

Warning:  Using a lawyer back home to help you recover funds in China may not work.

• • Many Americans hope they can use a US-based lawyer to “scare the Chinese company into corrective action”.
    • In most cases, this is a total waste of time and money because Chinese suppliers know that a US lawyer has no authority in China.
  • If you open a court case back home, it can be hard to get the Chinese company to even show up.
    • If they don’t show up, you may have a good chance of winning, but it will be very hard for you to convince a China court to enforce the US judgement.
  • A much more effective approach, in our experience, has been to get a registered lawyer in China to write a demand letter in Chinese and take the bad supplier to court in China if the demand letter is not successful.
    • There is one exception-  If the Chinese company has assets in your home country and you can link that local entity to the deal that went bad, then it may be worth exploring legal action back home.
    • Since most Chinese suppliers have no significant assets overseas, taking the fight to China is usually the best option.

The Realities of Using Chinese Lawyers (Demand Letters & Litigation)

Bad news:

• • Chinese judges do not award punitive damages, nor will they instruct the Chinese party to cover your legal fees if you win (unless that was pre-agreed in writing).
  • Chinese judges rarely allow testimony in a business dispute. So you will need to rely on hard evidence. A written contract and a bank statement showing proof of payment will have much more weight than an email and a packing slip from a 3rd party.
  • Sometimes the Chinese judge will accept English language evidence, but more often than not, they will exercise their right to request that key evidence is both notarized/authenticated and translated. That may require you contact the nearest Chinese consulate as they are authorized by the courts in China to authenticate official documents.

Tip:  It will save time and money if you work with the lawyer to select the key evidence and only have those items authenticated/translated.  Don’t expect the Chinese judge to dig down too deep into either party’s pile of evidence. It is very much to your advantage to make a simple and concise case, based on a short stack of solid evidence, rather than trying to impress the judge with a big stack of paperwork!)

• • Even if you win in a Chinese court, collecting court ordered compensation can take time, assuming the Chinese company is still in business.  It is possible to go after the legal representatives of the Chinese company, but you will first have to show the court that the company is non-compliant with the court order.

Good news:

• • A foreign company has the right to sue a Chinese company in China!
  • You may be happy to know that in China you can sue for indirect damage (lost revenue, for example).
    • Keep in mind that you may be able to seek compensation based on the “Value of Goods Sold” to your customer rather than just the “Purchase Price” from the Chinese supplier!
    • If your mark up is large, and if you can prove that the actions of the bad supplier caused you to lose the order with your customer, then suing for indirect damage can give you a lot of leverage.

More bad news:

• • Demand Letters have little impact when the seller is a fake company or bankrupt.  For this reasons, expect to need to conduct some basic due diligence before going too deep with the case, in order to ensure the Chinese company is still in business and has assets you can sink your teeth into.

More good news:

• • Demand Letter can be very effective at helping to recover losses from a registered business in China when issued from a registered Chinese lawyer (a Chinese lawyer in China, not a Chinese speaking lawyer back home!).
  • Luckily, basic due diligence is affordable (100’s not 1000’s of USD) and because the central government collects detailed data on Chinese businesses, it is fairly easy for a Chinese speaking investigator to collect key due diligence if they know where to look.
  • While Demand Letters don’t always work, they cost much less than a court battle, so doing some Due Diligence and issuing a Demand Letter usually makes sense in hopes of settling the matter directly and avoiding the need to go to court.
  • If you do end up going to court, know that the process is far less expensive than in the West and a decision is usually made in a fairly short period of time. The playing field is much more level these days and foreign companies are indeed having success in Chinese courts when they have solid local representation and can clearly show breach of contract.

Tip: Speaking of contracts… having a written contract will help your case a lot. But even in the absence of that document, Chinese exporters are legally obligated to supply a product that is “fit for function”.  So if you ordered red umbrellas without a contract and received blue ones, the case can be complicated because you don’t have clear evidence that the two parties agreed to red umbrellas.  But if those umbrellas showed up with quality defects that prevent them from working like an umbrella should, then you still have a decent case.

Conclusion

If your loss is substantial, don’t be afraid to take the fight to China! 

But if the combination of direct and indirect loss is less than 6,000 USD it probably doesn’t make sense to pursue legal action in China.  You would be better off spending your money on things like supplier verification & bilingual contracts to ensure your future orders don’t have problems. 

Additional Resources: English Speaking Chinese Lawyers in China

The above flow chart was reprinted with the permission of AsiaBridge Law (www.AsiaBridgeLaw.com). English-speaking, Chinese lawyers in the AsiaBridge Law network in China can assist with dispute resolution, loss recovery, contract drafting, due diligence and more.