Under PRC law, a Chinese supplier that takes a deposit and then fails to perform, defeating the purpose of the contract, must return double. That applies only if the payment was agreed as a deposit in the legal sense (定金), and only up to 20% of the contract value. An advance payment, prepayment or 订金 is refunded once, plus proven losses. If the contract also has a penalty clause, you choose one or the other.
- The label decides the amount. Only a payment agreed as a deposit (定金) is returned double. A payment called a down payment, prepayment, guarantee money or 订金, with no agreement that it is a deposit, is refunded once (Contract Interpretation, Art. 67).
- The deposit is capped at 20% of the contract value. On a "30% deposit", only 20% counts as a deposit. The rest is an ordinary payment (Civil Code Art. 586).
- The breach must defeat the purpose of the contract. Late or imperfect performance alone does not trigger the double return (Art. 587).
- Deposit or penalty, not both. If the contract has both, you choose. If the deposit does not cover your loss, you can claim the loss above it (Art. 588).
- Partial delivery reduces the penalty. If you accepted part of the goods, the double-return rule applies only to the part not delivered (Contract Interpretation, Art. 68).
- The rule cuts both ways. A buyer that cancels without right loses a true deposit.
What you get back, at a glance
| What the contract says | What you can claim | Why |
|---|---|---|
| "30% deposit" in English only, nothing saying it is a 定金 or what happens on breach | USD 30,000 back, plus losses you can prove | No agreement on deposit nature, so no double return (Interpretation Art. 67) |
| 30% agreed as 定金 | USD 50,000: USD 20,000 deposit returned double (USD 40,000), plus the USD 10,000 excess refunded | Only 20% of the contract value can be a deposit (Civil Code Art. 586) |
| 20% agreed as 定金, and a 10% penalty clause | Either the deposit route, USD 50,000 (the USD 20,000 deposit returned double, plus the other USD 10,000 paid), or the penalty route, USD 40,000 (the USD 30,000 refunded, plus a USD 10,000 penalty) | You choose one (Art. 588) |
| 20% agreed as 定金; the supplier shipped 60% of the order, which you accepted, then stopped | The deposit penalty on the undelivered 40% only: USD 8,000 extra, not USD 20,000, plus the return of money paid for goods not delivered | Proportional application after partial performance (Interpretation Art. 68) |
| Both sides committed breaches that defeated the contract | No double return; refund and damages are assessed on the facts | Interpretation Art. 68 |
| Performance became impossible because of force majeure | No double return; the payment is refunded | Interpretation Art. 68 |
The figures assume that the deposit, if agreed, was actually paid in full. They exclude interest, costs and any damages above the amounts shown.
1. Deposit (定金) or advance payment: why the label matters
Chinese law treats a deposit (定金) as a form of security for the contract. Its effect is set out in Article 587 of the Civil Code. If the contract is performed, the deposit is credited against the price or returned. If the party that paid it fails to perform, or performs so badly that the purpose of the contract cannot be achieved, it loses the deposit. If the party that received it fails in the same way, it must return double.
No other kind of payment has that effect. The Supreme People's Court's 2023 interpretation of the general part of the Civil Code's contract rules (the "Contract Interpretation") says so directly. Where a party pays retention money, guarantee money, a security deposit, an order payment, a pledge or 订金, and the parties did not agree that it has the nature of a deposit, a court will not apply the double-return rule (Art. 67). That payment is refunded once, if you are entitled to terminate, together with damages you can prove.
The two Chinese terms sound the same. 定金 (dìngjīn) is the legal deposit. 订金 (dìngjīn, written with a different first character) is an order payment and carries no penalty. On a Chinese-language contract, one character decides whether you can claim double.
2. When "deposit" in English counts as a 定金
Most orders from Chinese suppliers are placed on an English pro forma invoice that says "30% deposit, balance before shipment". The English word "deposit" covers both 定金 and ordinary prepayments, so it does not answer the question on its own. What a court looks for is an agreement that the payment has the nature of a deposit. In practice, three things help:
- A Chinese version of the contract, or a bilingual clause, that uses 定金.
- Wording that states the deposit consequences: the buyer forfeits the deposit if it fails to perform, and the supplier returns double if it does.
- Correspondence in which the supplier itself called the payment 定金.
If none of these exists, plan on a single refund and build your claim on damages. Once it is clear that the payment is a deposit but the type is not stated, a court treats it as a deposit that secures performance, the kind that is returned double on breach (Art. 67).
Two other types are recognised. A deposit given to secure the signing of a contract is lost, or returned double, by the party that refuses to sign or negotiates in bad faith. A termination deposit (解约定金) lets either party walk away: the payer by forfeiting the deposit, the recipient by returning double (Art. 67).
3. The 20% cap: what happens to the rest
Article 586 of the Civil Code caps a deposit at 20% of the value of the main contract. Any excess "does not have the effect of a deposit". A buyer who paid 30% or 50% up front therefore has a deposit claim on 20% at most. The rest is an ordinary payment, refunded once when the contract is terminated.
The deposit is also measured by what was actually paid. A deposit agreement is formed only when the deposit is actually paid, and if the amount paid is more or less than the amount agreed, the agreed amount is treated as changed to match (Art. 586). If the contract said 20% but you paid 10%, your deposit is 10%.
4. When the double return applies
The double return is a penalty for a serious breach, not for any breach. Article 587 requires that the supplier failed to perform, or performed in a way that did not conform to the contract, so that the purpose of the contract could not be achieved. Non-delivery, an outright refusal to ship, or goods so defective they are useless for the purpose usually meet that test. A two-week delay usually does not, unless time was essential to the contract.
The Contract Interpretation (Art. 68) adds three rules that the English-language guides rarely mention:
- Both sides in breach. If both parties committed breaches that defeated the purpose of the contract, neither can claim the deposit penalty. A minor breach by the buyer, such as a short delay in paying the balance, does not stop the buyer from claiming against a supplier whose breach defeated the contract.
- Partial performance. If the supplier delivered part of the order and you accepted it, the penalty applies in proportion to the part not performed. You cannot claim the penalty on the whole contract, unless the part not delivered itself defeated the purpose of the contract.
- Force majeure. If force majeure made performance impossible, the deposit penalty does not apply.
5. Deposit, penalty clause and damages: what you can combine
Many supplier contracts contain both a deposit and a liquidated damages clause. Under Article 588 of the Civil Code, when one party breaches, the other chooses between the penalty clause and the deposit clause. You cannot stack them. Choose the one that yields more on your facts, as in the worked example above.
If the deposit does not cover your loss, Article 588 lets you claim the loss above the deposit amount. Losses are measured under the ordinary damages rule: what you actually lost, including the benefit you would have obtained, limited to losses the supplier foresaw or should have foreseen when the contract was made (Art. 584). Keep the evidence: a replacement order at a higher price, lost resale contracts, extra freight.
6. If you are the one who wants to cancel
The same rules apply in reverse. A buyer that cancels an order without a contractual or legal right to do so, after paying a true deposit, loses the deposit (Art. 587). Before cancelling, check whether the payment was agreed as a 定金 and whether the supplier is already in breach, for example by missing the delivery date. A supplier in breach cannot keep your deposit by pointing to your cancellation if its own breach entitled you to terminate. See paid a Chinese supplier but no goods arrived for the deadline notice that makes termination safe.
7. If the contract is governed by the CISG
Many contracts between Chinese suppliers and foreign buyers fall under the UN Convention on Contracts for the International Sale of Goods. The Convention has no rules on deposits, so the effect of a deposit clause in a CISG contract is less settled than under Chinese domestic law, and depends on the wording and on the law that fills the gap. Take advice before building a demand on a double return in that situation. How Chinese courts approach CISG claims is covered in Guiding Case No. 107.
How to make the claim
- Collect the documents that show what the payment was: the contract or pro forma invoice in every language version, the bank transfer record, and any message in which the supplier described the payment.
- Work out both figures: the refund-plus-damages figure and the deposit figure, and choose.
- Terminate properly. Termination takes effect when your notice reaches the supplier (Civil Code Art. 565). Send it in writing, ideally in Chinese, with proof of delivery.
- Demand the amount with a deadline, citing the deposit clause if there is one.
- Watch the limitation period. Claims under an international sale of goods contract must be brought within four years (Art. 594); most other contract claims within three (Art. 188).
When it is not worth pursuing
The difference between a single and a double refund is at most 20% of the contract value. On a small order, that difference, and sometimes the whole claim, can be smaller than the cost of translation, authenticating documents signed abroad, and a Chinese lawyer. See what it costs to sue a Chinese company. A supplier with no assets in China will not pay double, or at all, whatever the contract says.
When to bring in a China lawyer
Bring in a China lawyer when the contract is bilingual or unclear about what the payment was, when the supplier has delivered part of the order, or when the amount justifies a lawsuit or an asset freeze. Our China supplier disputes page explains how we act for foreign buyers, and what to do when a Chinese supplier won't refund covers the steps before proceedings.
Frequently asked questions
Only if the payment was agreed as a deposit in the Chinese legal sense (定金) and the supplier’s failure defeated the purpose of the contract. Then the supplier must return double the deposit (Civil Code Art. 587). The deposit counts only up to 20% of the contract value. An ordinary advance payment is refunded once, with any losses you can prove.
Not automatically. The English word covers both a legal deposit and an ordinary prepayment. A Chinese court applies the double-return rule only where the parties agreed that the payment has the nature of a deposit, for example by using the term 定金 or stating the forfeit-or-double consequences. Without that, it is refunded once (Contract Interpretation Art. 67).
No. Article 586 of the Civil Code caps a deposit at 20% of the contract value, and any excess does not have the effect of a deposit. On a USD 100,000 order with USD 30,000 agreed as a deposit, the double return applies to USD 20,000. The other USD 10,000 is refunded once.
No. If the contract has both, you choose one (Civil Code Art. 588). If the deposit does not cover your loss, you can claim the loss above the deposit amount, measured under the ordinary damages rule and limited to losses the supplier could foresee when the contract was made.
Only to the part not delivered. If you accepted part performance, a court applies the deposit penalty in proportion to the unperformed part, not to the whole contract, unless the missing part itself defeated the purpose of the contract (Contract Interpretation Art. 68).
Sources
- National Database of Laws and Regulations — PRC Civil Code Arts. 188, 565, 566, 584, 586, 587, 588 and 594 (Chinese).
- PRC Civil Code, Book III, Chapter 8 (Liability for breach of contract), full text of Arts. 577–594, as republished by a county government (Chinese).
- Supreme People's Court — Interpretation on the General Part of the Contract Book of the Civil Code (Fa Shi [2023] No. 13, in force 5 December 2023), Arts. 67–68 (Chinese).
- Nanjing Municipal Bureau of Justice — full text of the same interpretation (Chinese).
- Internal: supplier won't refund · paid but no goods arrived · supplier stopped replying · freezing assets · China supplier disputes
This article is general information for foreign companies, not legal advice on any specific matter. Rules and practice change; please take advice on your facts.
