Oct 28, 2023
by Yi Dai and Dimitri Philips
Winning a court case is only one step towards assisting a plaintiff to recover losses from a defendant’s wrongful conduct: lawyers often, and clients sometimes, forget what it then takes “to collect”. And with international disputes on the rise, it behooves businesses’ bottom line to be aware of relevant jurisdictions’ mechanisms and tools for going from a favorable court judgment to actually obtaining compensation.
Contrary to popular belief, China has a relatively robust regime for compelling judgment debtors to pay up and even for directly seizing and re-distributing their assets. This article, after briefly introducing the formalities of enforcement actions, summarizes what judgment creditors can expect from Chinese courts in the final steps to the ultimate objective: monetary recompense.
Formalities of Initiating Enforcement
After a court has issued a judgment supporting a claim for monetary relief, assuming the losing party does not pay (and does not appeal within the relevant time period or cannot appeal), the winning party must initiate another court action for “enforcement” of the judgment. The enforcement action must be initiated, within two years of the judgment’s rendering, in a court with jurisdiction either where the judgment debtor is domiciled or where it has assets. This applies equally to enforcing a foreign court judgment as to a local one.
For foreign court judgments, there are certain substantive requirements (e.g., the judgment must be “legally effective”), most notably the determination of whether China has a treaty or “reciprocity” for enforcement of such foreign judgments. Aside from already having several dozen such treaties, Chinese courts have been recognizing more and more “reciprocity”, and recently doing so not only when a court from the relevant country previously enforced a PRC court judgment, but even just when the country’s laws are such as to allow it to do so.
Once the Chinese court determines it has jurisdiction and the substantive requirements are satisfied, it will accept the enforcement action and begin taking steps to obtain assets from the judgment debtor for compensating the judgment creditor.
Compelling the Losing Party to Pay Up
As a first step in enforcement, after confirming the judgment debtor has refused to (fully) carry out the order of the effective court judgment and there are at least indications of enforceable property, the PRC court will order the debtor to report its assets of the current and prior years. Failure to (truthfully) report is cause for fines and even detention. In fact, the court may summon, or even detain and bring before it, the debtor for questioning. Although such detention is relatively rare and of limited duration, it can have powerful effects on the debtors ordinary and work life, reputation, mental state, etc. Any asset information obtained from these measures can be used as bases both for further compulsion (see here below) and for direct enforcement against assets (see next section).
Courts in China have several means of further, somewhat indirect but surprisingly effective, compulsion.
A key means of compelling judgment debtors to pay up is to add them to the “List of Dishonest Persons Subject to Enforcement” (失信被执行人名单) and apply so-called “consumption restrictions”. As a result of these measures, in addition to reputational damage and impact on (social) credit, debtors are restricted from a large variety of activities. As examples, airlines and train operators refrain from selling certain (or any) tickets to the debtors; many (if not all) hotels, golf clubs, etc. do not grant access; debtors are not able to purchase most kinds of apartments, offices, etc., materials for renovations, vehicles, etc.; and even debtors’ children are not allowed to attend certain (e.g., high-fee private) schools. Courts can even restrict cross-border travel for debtors.
The most severe “stick” in the enforcement court’s arsenal, of course, is an order for imprisonment. In theory, a court can sentence a judgment debtor to as many as seven years in prison. However, the circumstances for such a measure are rare, generally involving tangential misconduct (e.g., using violence to impede enforcement), and China does not have “debtors’ prisons”.
Directly Obtaining Assets for Compensation
In lieu of or in parallel with measures such as the above for compelling a judgment debtor to “voluntarily” pay a judgment creditor, an enforcement court has several methods for seizing assets of the debtor to directly compensate the creditor.
In the most straightforward situation, if the enforcement applicant can lead the court to assets within its jurisdiction, such as real property or bank accounts, the court can directly satisfy enforcement. It can seize and auction the property and hand over proceeds to the judgment creditor, or it can transfer funds from the debtor’s to the creditor’s account.
Furthermore, the court can even order the bank to transfer any funds subsequently coming into the debtor’s account, including a portion of salary. And if the debtor fraudulently transfers assets to avoid enforcement, the court can void the transfers.
Finally, if the debtor in turn has enforceable claims against a third party, the court can transfer those to the judgment creditor. This applies both to claims against third parties that are in the process of enforcement and to claims the debtor is not actively pursuing (in which case the creditor would be subrogated to those claims).
While, in any jurisdiction, obtaining a court judgment supporting a claim for monetary damages is far from the end of a civil suit, China has many and sophisticated (yet still multiplying and expanding) measures to facilitate actual recovery. In fact, several measures may be rare and more effective compared to relatively crude means in other countries. For example, China’s system harnesses the innate social forces of its people, shaming and making pariahs out of defaulting judgment debtors through the “List of Dishonest Persons Subject to Enforcement” and consumption restrictions. Of course, PRC courts also have the more common means of compelling enforcement, such as fines and detention, as well as of directly seizing, auctioning, and transferring assets of judgment debtors.
Nevertheless, as in any jurisdiction, many obstacles continue to plague enforcement in China, starting from locating debtors and assets and running through mundane issues of bureaucracy, including (relatively rare) instances of low-level local protectionism. Recognizing shortcomings, in mid-2022, the Supreme People’s Court’s draft Civil Compulsory Enforcement Law was released for public comments, and the official issuance may be expected at any time. Instead of the existing three dozen articles regarding enforcement (in the Civil Procedure Law), the draft law has almost 300. A wide range of aspects are covered, from the creation of asset information databases, through empowering attorneys to investigate assets, to providing for daily fines of up to RMB 100,000 (approx. USD 14,000) for individuals and RMB 1 million (approx. USD 140,000) for companies.
With the proliferation of business and wealth in China, and especially in light of the current climate of disputes, more and more plaintiffs may seek to recover losses from defendants’ assets in China. It is encouraging to see that China not only already has and generally uses myriad tools to assist in judgment enforcement but also is taking substantial steps to add to the arsenal for overcoming uncooperative or even underhand judgment debtors.
 The domicile of a natural person is his or her residence recorded in the household registration (“户籍”) or other valid identity register, except that if the habitual residence of that person is not the same as the domicile, the habitual residence is deemed as the domicile. The domicile of a legal person (e.g., a corporation) is the place of the legal person’s main office; where the place of the main office cannot be determined, the legal person’s registered address is deemed as the domicile.
 Civil Procedure Law of the People's Republic of China (《中华人民共和国民事诉讼法》; “CPL”), promulgated on 9 April 1991, most recently amended on 24 December 2021, effective as of 1 January 2022, Articles 231 and 288. Note that the application for enforcement cannot simply and solely assert that assets exist in the jurisdiction; the application must give specific details or at least “clues” about the nature and location of the assets.
 In simple words, the court judgment must be final, definitive, enforceable (according to the laws of the jurisdiction in which it was rendered). See, e.g., Provisions of the Supreme People's Court on Several Issues Concerning the Enforcement Work of the People's Courts (for Trial Implementation) (《最高人民法院关于人民法院执行工作若干问题的规定（试行）》; “Enforcement Work Provisions”), issued on 23 December 2020, effective as of 1 January 2021, Article 16.
 CPL, Article 248.
 CPL, Article 248.
 Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law of the People's Republic of China (《最高人民法院关于适用<中华人民共和国民事诉讼法>的解释》; “Application Interpretation”), issued on 30 January 2015, most recently amended on 1 April 2022, effective as of 10 April 2022, Article 174.
 Summoning a person by means of arrest, and the imposition of a fine or detention, is subject to approval by a court president, and the fine is limited RMB 100,000 and the detention to 15 days. CPL, Articles 118 and 119.
 Application Interpretation, Article 516.
 Several Provisions of the Supreme People's Court on Restricting Extravagant Spending and the Relevant Consumption of Persons Subject to Enforcement (《最高人民法院关于限制被执行人高消费及有关消费的若干规定》), issued on 1 July 2010, most recently amended on and effective as of 20 July 2015, Article 3.
 CPL, Article 262.
 Criminal Law of the People's Republic of China (《中华人民共和国刑法》), promulgated on 14 March 1997, mostly recently amended on 26 December 2020, effective as of 1 March 2021, Article 313.
 CPL, Article 249.
 CPL, Article 250.
 Enforcement Work Provisions, Article 44.
 Enforcement Work Provisions, Article 61.
 Civil Compulsory Enforcement Law of the People’s Republic of China (Draft for Comments) (《中华人民共和国民事强制执行法（草案）》), released on 27 June 2022.