Distinguish a statutory earnest-money deposit from an advance payment, specify damages and assess trade credit as lending
The Chinese term “定金” triggers the deposit rule: a defaulting payer loses it; a defaulting recipient returns double. The portion above 20% of contract value does not qualify. “订金” does not automatically carry these consequences. Allowing a payment period lends your money to the buyer; failure can leave a bad debt.
What it takes
Free. In a Chinese contract, use “定金” for statutory earnest money, capped at 20% of contract value. Collect before shipment. Investigate customers before letting them take goods now and pay later.
What you may gain
Statutory earnest money becomes effective on actual delivery. A defaulting payer forfeits it; a defaulting recipient returns it plus an equal amount. Anything above 20% of the principal contract's value does not receive this treatment. A court may increase or reduce agreed liquidated damages on request where they are substantially too low or excessive relative to actual loss. Where both earnest money and liquidated damages are agreed, the claimant must choose one remedy rather than collect both. These Chinese rules apply from 2021.
Context & considerations
“订金” is generally treated as an advance payment rather than statutory earnest money; that is common practice, but this chapter did not verify a judgment. Trade credit is effectively an interest-free loan, with default risk if the buyer fails. Check the counterparty in China's National Enterprise Credit Information Publicity System and investigate litigation before extending credit.
Research & references
National People's Congress of China (2020). Civil Code, Articles 585–588. https://www.spp.gov.cn/spp/fl/202006/t20200602_463888.shtml