Have you ever encountered a situation where the lawyers appointed by China Export & Credit Insurance Corporation (hereinafter referred to as “SINOSURE”) come to collect the payment for goods from you?

This post was first published in CJO GLOBAL, which is committed to providing consulting services in China-related cross-border trade risk management and debt collection.We will explain how debt collection works in China below.

Imagine this situation: You have purchased a batch of commodities from a Chinese exporter but you refused to pay for the goods because of the Chinese exporter’s delay in delivery or the poor quality of the commodities. Much later, two local lawyers might contact you and inform you that SINOSURE has entrusted them to collect payment for goods from you and might sue you.

Why was that? What happened?

1. What is SINOSURE？

SINOSURE is a state-funded and policy-oriented insurance company established and supported by the state.

According to its official website, its Export Supplier’s Credit Insurance helps an exporter safeguard its foreign exchange collection under the supplier’s credit financing.

In short, if you, the importer, fail to pay for the products for which Chinese exporters have purchased the insurance from SINOSURE, SINOSURE will compensate the exporters and then claim the reimbursement against you.

SINOSURE has established partnerships with local debt collectors and lawyers in many countries, enabling it to collect payments from importers indeed.

2. How to avoid being asked for payment by SINOSURE?

If it is your obligation to make the payment, it is unconscionable to evade your obligation to pay in any way.

But what if you are legally exempt from the obligation to pay for the commodities? If it is the case, no one has the right to demand payment from you.

In order to achieve this purpose, you shall duly and properly terminate your contracts with Chinese suppliers in a timely manner.

After the contract is terminated, you don’t have to pay off the remaining amount, and the other party doesn’t have to deliver the remaining commodities.

3. How do you terminate a contract?

If the contract agrees on steps of rescission, you need to follow the agreed steps to terminate it. If not, you need to complete the rescission in accordance with Chinese law, which stipulates the following steps.

First, you must collect evidence of the other party’s breach of the contract.

You need to lead the other party to make an express repudiation, including statements saying “I will not deliver” or “You must pay more or I will not deliver”.

Where the other party simply delays the performance of his obligation, you need to first notify the other party to deliver the commodities as soon as possible and give the other party a reasonable grace period. And you are entitled to terminate the contract upon the expiry of the grace period if no reshipment is made during the period.

Where the quality of the product delivered by the other party is substandard, you need to adopt the following steps.

The first step is to inform the other party of substandard product quality and explain to him that the commodities are completely unsaleable or unusable.

The second step is to give the other party a grace period to make another shipment and take back the original commodities.

And the last step is to terminate the contract upon the expiry of the grace period if no reshipment is made during the period.

Then, you can notify the other party of your rescission of the contract.

The contract shall be terminated as of the date of the other party’s receipt of your rescission notice. Therefore, you need to prove that the other party has received the notice.

In addition, you can also file a lawsuit with a court or apply to an arbitral institution for arbitration and ask them to confirm the rescission of the contract.

It should be noted that you must exercise your right to terminate a contract within a certain period of time by giving notice, filing a lawsuit with a court, or other reasonable means. If you fail to exercise such right in due time, you are no longer entitled to terminate the contract.

Well, what is the period length?

You can agree on that period in the contract. If there is no such agreement in the contract, the Chinese law will fill the gap by prescribing a period of one year from the date you know or should have known the occurrence of the rescission cause.

Photo by Timur Garifov on Unsplash

Contributors: Meng Yu 余萌

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