If you know in advance which factory the trader represents, you can only sue the factory. If not, you can choose to sue either the trader or the factory.
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.
In China, many factories do not export to international purchasers directly, but through traders.
These factories tend to focus on producing products according to orders, and do not care about market demand, import and export procedures, logistics, customer communication and other tasks because these may seem too tedious for them.
These tasks are carried out by traders who have stronger market development ability and are more familiar with customs and logistics.
These traders are often based in cities where ports are located, such as Guangzhou and Shenzhen. And factories are located within 100 kilometers of these cities. Together, these traders and factories form an efficient supply chain.
However, international purchasers may not feel confident about purchasing from a trader without manufacturing capacity. The fear is that the trader has no manufacturing capacity and therefore no practical ability to fulfill the contract.
What can the purchaser do in case of a breach of contract by a Chinese trader?
In two cases, the purchaser has different options:
In the first case, the purchaser knows which factory is behind the trader in the first place. And the factory is not qualified to import or export or is not good at handling import and export affairs, so it entrusts a trader as its agent to deal with the purchaser.
Under Chinese law, the purchaser can only sue the factory instead of the trader in this case.
In the second case, the purchaser does not know which factory is behind it. The purchaser only deals with the trader, regardless of where the trader gets the goods or which factory it represents.
Under Chinese law, in this case, the purchaser can choose to sue the trader or the factory once it knows the factory.
At this point, the purchaser may consider claiming against the party with a stronger ability of actual performance.
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Photo by William Zhao on Unsplash
Contributors: Meng Yu 余萌