Navigating China's Legal System: Key Challenges for Foreign Creditors

Foreign creditors, particularly those from the United States, frequently face substantial obstacles when attempting to recover debts from Chinese entities through China's legal system. While China's courts have increasingly upheld the validity of foreign-related claims, certain structural aspects of the legal framework still present significant hurdles[clydeco.com ]. Here, we highlight three key institutional designs that disadvantage foreign creditors:

1. Jurisdictional Complexities

One fundamental challenge is jurisdictional clarity. Foreign court judgments, such as those from the U.S., are not automatically enforceable in China due to the absence of a bilateral recognition treaty[clydeco.com ]. Historically, Chinese courts have required evidence of reciprocal enforcement—a significant obstacle given the limited history of mutual enforcement between China and the U.S.[clydeco.com ]. This often forces foreign creditors to restart legal proceedings entirely within China, incurring substantial additional costs and delays[chinajusticeobserver.com ].

Moreover, even when jurisdiction is clearly defined, procedural complexities often arise. Chinese courts mandate extensive authentication processes, including notarization and consular legalization of documents originating overseas. This strict procedural requirement can add considerable time, expense, and potential for disputes over document authenticity.

2. Evidentiary Standards and Burdens

Chinese litigation is heavily reliant on documentary evidence, and the evidentiary standards can be exceptionally demanding for foreign litigants. Courts require thorough documentation translated into Chinese, officially notarized, and legalized. In practice, informal or digital communications (e.g., email or chat logs) must be rigorously authenticated—often by notarization—to be admissible.

A well-known case involving a German travel services company illustrates this burden[bj148.org ]: disputes over informal chat-based confirmations required extensive forensic audits and authentication of electronic messages to verify service delivery[bj148.org ]. Such evidentiary rigor often catches foreign creditors off guard, significantly complicating the litigation process.

3. Asset Preservation and Enforcement Difficulties

Even if a foreign creditor successfully obtains a favorable judgment, enforcing that judgment to secure actual payment remains a daunting challenge. Chinese courts allow asset preservation measures (such as freezing debtor bank accounts), but securing such measures requires the creditor to post a security deposit, which can be prohibitively expensive[bj148.org ]. Moreover, without prompt action, debtors frequently dissipate or conceal assets, leaving creditors with enforceable judgments but no recoverable assets.

Additionally, China's enforcement processes can be bureaucratic and slow[chinajusticeobserver.com ]. Creditors must actively provide leads on debtor assets, navigate complex procedural rules, and continually follow up to ensure enforcement officers act diligently.

Practical Recommendations for Foreign Creditors

Given these challenges, foreign creditors are advised to:

• Clearly define jurisdiction and arbitration clauses favoring enforceable forums[lexology.com ].
• Maintain meticulous documentation and obtain formal confirmations throughout business engagements[bj148.org ].
• Utilize asset preservation measures early in disputes to prevent asset dissipation[bj148.org ].
• Seek professional local assistance for navigating procedural complexities, enforcement strategies, and communication hurdles[digitaling.com ].

Understanding and proactively addressing these inherent challenges can significantly improve a foreign creditor's ability to successfully recover debts within China's challenging legal landscape.

References

1. Clyde & Co. (2025). Recognition and Enforcement of Foreign Court Judgments in China: Recent Developments. Retrieved from https://www.clydeco.com/en/insights/2025/01/recognition-and-enforcement-of-foreign-court

2. China Justice Observer. (2023). 2023 Guide to Enforce US Judgments in China: Jurisdictional and Procedural Requirements. Retrieved from https://www.chinajusticeobserver.com/a/2023-guide-to-enforce-us-judgments-in-china

3. Beijing Commercial Court. (2022). Foreign-Related Commercial Disputes: Evidence Authentication and Service Contract Cases. Retrieved from https://www.bj148.org/zz1/shaq/202207/t20220711_1636261.html

4. Beijing Courts Portal. (2023). Asset Preservation Procedures and Security Requirements in Foreign-Related Cases. Retrieved from https://www.bj148.org/fwts/202312/t20231212_1660448.html

5. Lexology. (2024). Foreign Arbitral Award Enforcement in China: New York Convention Implementation. Retrieved from https://www.lexology.com/library/detail.aspx?g=7c5e5c31-6fb5-470f-94df-e624c5d6c49b

6. Lexology. (2024). Preventive Measures for Cross-Border Debt Recovery in China. Retrieved from https://www.lexology.com/library/detail.aspx?g=776d48f8-c2f2-41ef-893f-8b54ae201ba8

7. Digitaling. (2024). Professional Debt Collection Strategies: Navigating Cross-Border Commercial Disputes. Retrieved from https://www.digitaling.com/articles/24859.html