Debt Collection in China
Debt collection in China is far easier than most people in North Americans realize. However, there are several factors to consider before you hire a collection agency for debt collection from a delinquent company, or debtor, who resides in Mainland China. In China, the government controlled credit reporting institution is frequently the main leverage used by a Chinese collection agency.
You can only list a debt for collection with a licensed lawyer in China. Technically, a collection agency cannot list debt from foreign-based companies for collection, unless the agency is owned by a lawyer, or the agency has an in-house lawyer. Once a debt is listed for collection with a lawyer, then the lawyer can retain, or use a collection agency.
China’s "Credit Bureau”
The government controlled Peoples Bank of China (PBOC) Credit Information System Bureau is completely different than the private company credit bureaus we are used to in North America. Here is the main collection strategy used in China by a collection agency.
It must be kept in mind that China is very different than North America, as there is no privacy. There are presently 176 million CCTV surveillance cameras in China. This number is expected to rise to 626 million cameras within the next three years. Facial recognition technology is rampant in China and used as leverage by a collection agency.
All a collection agency has to do is report the delinquent debt to the PBOC Credit Information System Bureau. Once the debt is reported to the Credit Information System Bureau, facial recognition and surveillance programs can be used to apply severe pressure on the debtor to pay the collection agency.
Facial recognition is used to identify delinquent debtors and deny their access to public services. For example: If a person has an overdue bill, they can be barred from using public transport to get to their job. Needless to say, the government credit reporting system in China is a powerful tool for a collection agency.
Doing Business in China and Debt Collection
If your company conducts business in Mainland China and has trademarks and patents licensed in China, make sure everything is in proper order. A common debtor stall tactic and negotiation tool in China is called Trademark Squatting. A debtor gets a relative or associate to tie up, or try and steal a creditor’s trademark. Trademark Squatting is frequently used as a negotiating tool against a collection agency.
There are also numerous other methods debtors will use in China to avoid payment, or get a major discount off the amount they owe. Make sure any Intellectual Property is on a solid legal footing.
The lawyers we transfer accounts to in China are well aware of these stall tactics and how to prevent a debtor from using the system against you. If you are actually doing business in China, always make sure the lawyer in China has these bases covered BEFORE handing the debt to a collection agency.
Another thing to keep in mind is there are a lot of sophisticated scams where debt is collected, only to have agency disappear with your money.
Need Debt Collection in China?
Give us a call, as IRS has several trusted and reliable law firms we deal with in China. You can also schedule a free no obligation consultation on retaining a Chinese collection agency.