Meta Description:Foreign companies often lose leverage in disputes with Chinese partners because of avoidable mistakes. Learn the most common errors in dispute resolution involving China and how to avoid them.
Introduction: Losing Before the Dispute Even Starts
Many cross‑border disputes involving Chinese companies are effectively decided long before anyone files a claim. Contract drafting, choice of forum, evidence keeping, and on‑the‑ground strategy can all determine whether a foreign company ultimately recovers anything in China.Below we summarize frequent mistakes we see in practice and offer practical suggestions to foreign companies and their counsel.
Mistake 1: Ignoring Enforceability in China When Choosing Governing Law and Forum
It is common to see contracts that:
- Choose a foreign court without any treaty or clear reciprocity path with China; or
- Use vague or invalid arbitration clauses; or
- Mix inconsistent choices of law and forum.
Result: Even if you win abroad, you may not be able to enforce the judgment in China, where the debtor’s assets are located.How to avoid:
- Consider arbitration seated in a New York Convention state or in a jurisdiction with better enforcement prospects.
- For court litigation, evaluate whether Chinese courts or certain treaty partners offer more realistic options.
- Obtain advice from counsel familiar with both Chinese and international enforcement issues before signing.
Mistake 2: Underestimating the Importance of Chinese‑Language Documentation
Many foreign companies rely heavily on English‑language contracts and correspondence, while their Chinese counterparties operate primarily in Chinese:
- Internal approvals, board resolutions, and seals may be in Chinese only.
- Key communications may take place via WeChat, using informal language.
Result: When a dispute arises, you may struggle to prove what was agreed or what actually happened under Chinese evidentiary standards.How to avoid:
- Ensure that important documents are bilingual or properly translated.
- Keep organized records of key WeChat and email communications, including screenshots and export files.
- Involve Chinese‑speaking professionals early in negotiations and performance.
Mistake 3: Waiting Too Long to Take Legal or Investigative Action
Foreign companies sometimes delay serious action for months or years, hoping that the Chinese counterparty will “eventually pay”:
- By the time they act, assets have been transferred, companies have been deregistered, or responsible individuals have moved on.
- Statutes of limitation may become an issue.
How to avoid:
- Treat significant unpaid debts or serious breaches as early warning signs.
- Conduct preliminary asset checks and legal analysis as soon as the problem surfaces.
- Consider property preservation or interim measures where appropriate.
Mistake 4: Relying on Unvetted Local Agents or “Fixers”
In difficult disputes, some turn to informal agents promising quick recoveries through “special relationships” or aggressive tactics. This can create:
- Legal and compliance risks (including anti‑bribery laws)
- Reputational damage
- Loss of control over sensitive information and strategy
How to avoid:
- Work with properly licensed law firms and investigators who understand both Chinese law and international compliance requirements.
- Maintain clear written mandates and reporting lines.
- Avoid arrangements that cannot be explained or documented transparently.
Mistake 5: Failing to Align Global Strategy with China‑Specific Realities
Multinational companies may pursue litigation or arbitration in multiple jurisdictions without a coordinated strategy for China:
- Settlements reached abroad may be hard to implement in China.
- Actions elsewhere may inadvertently weaken their position in Chinese proceedings.
How to avoid:
- Involve China‑experienced counsel in global strategy discussions from the start.
- Assess how each step abroad may affect enforcement prospects or legal positions in China.
- Consider combined negotiation packages that address obligations and assets in multiple jurisdictions.
How to Build a Stronger China Dispute Strategy
To reduce these risks:
- Invest in thoughtful contract structuring before deals are signed.
- Maintain robust documentation and compliance systems.
- Conduct timely fact‑finding and asset investigations when disputes arise.
- Work with a team that can integrate litigation, arbitration, and investigative tools on the ground in China.
Our firm regularly assists foreign companies in diagnosing weaknesses in existing dispute arrangements and designing more effective approaches for current and future cases.