Chinese Contract Law
Sources and the 2020 Civil Code
Chinese contract law is codified in Book III (Contracts) of the Civil Code of the People’s Republic of China, effective 1 January 2021, comprising Articles 463 to 977. The Civil Code replaced the Contract Law of 1999, which had itself replaced three separate contract statutes from the early 1980s. Book III preserves much of the 1999 law while introducing innovations drawn from judicial practice and comparative study. It is supplemented by the Supreme People’s Court’s judicial interpretations (sifa jieshi), particularly those on application of the Contract Law (2009, 2012) and subsequent Civil Code interpretations.
Definition and Scope
Article 464 defines a contract (hetong) as an agreement on the establishment, modification, or termination of a civil legal relationship between persons of equal status, excluding personal status matters (marriage, adoption, guardianship) governed by Books V and VI. The Civil Code recognises 19 nominate contract types (Articles 595-977): sales, supply of utilities, gift, loan, lease, financial lease, construction, carriage, technology, deposit, warehousing, agency, brokerage, commission, factoring, partnership, property management, lottery, and accommodation contracts.
Formation
Formation (Articles 471-502) requires offer (yaoyue) and acceptance (chengnuo). An offer (Article 472) must contain definite terms and indicate the offeror’s intent to be bound upon acceptance. It is effective when it reaches the offeree (Article 474, receipt theory). Revocation is possible before acceptance is dispatched (Article 477), except where the offer indicates irrevocability, fixes a time for acceptance, or the offeree reasonably relies on it. An invitation to treat (Article 473) — advertisements, catalogues, tender notices — is not an offer unless expressly indicated. Acceptance (Article 479) must correspond to the offer; modifications constitute a counter-offer (Article 488) unless non-material and not objected to (Article 489). A contract is formed when acceptance becomes effective (Article 483). Written form (Article 469) is required for real property transactions, contracts requiring government approval, and certain high-value contracts, though the requirement is evidential rather than validity-related.
Validity
A valid contract requires (1) capacity, (2) genuine intention (zhenshi yisi biaoshi), and (3) compliance with mandatory provisions and public interest (Article 143). A contract by a person with limited civil capacity (minors aged 8-17, adults with limited capacity) is subject to ratification by the legal representative (Article 145). Void contracts (wu xiao hetong) under Article 153 are those violating mandatory provisions or harming public interest (gonggong liyi). The Supreme People’s Court distinguishes effectiveness-compelling rules (效力性强制性规范), whose violation invalidates the contract, from administrative compulsory rules whose violation carries only administrative consequences.
Voidable contracts (kexiao chexiao hetong) are vitiated by fraud (qizha, Article 148), duress (xiepo, Article 150), manifest unfairness (xianshi gongping, Article 151), or material mistake (zhongda wujie, Article 147) — mistake as to the nature, parties, subject matter, or quality, provided not caused by the party’s gross negligence. Avoidance must be exercised within one year from knowledge (90 days for fraud, Article 152). Restitution follows avoidance; if impossible, compensation is assessed based on the parties’ respective fault (Article 157).
Performance
Parties must perform fully and in good faith (chengshi xinyong yuanze), in accordance with the contract’s nature, purpose, and trade usage (Article 509). The obligation of good faith extends to performance, modification, and termination. Article 527 permits suspension of performance (bu’an kangbianquan) where the other party’s financial position has seriously worsened or their business circumstances have deteriorated, analogous to the common law doctrine of anticipatory breach. Article 563 expressly provides for anticipatory breach: where a party expressly declares or indicates by conduct they will not perform a principal obligation, the injured party may rescind without waiting for the performance date.
Breach and Remedies
Articles 577-594 govern breach liability (wei yue zeren). A party who fails to perform or performs non-conformingly is liable for continued performance (jixu lvxing), cure or re-performance, or damages (Article 577). Damages (Article 584) cover the loss caused by breach, including lost profit (keshiyi de liyi), but are limited by the foreseeability rule — the breaching party is liable only for loss foreseen or foreseeable at formation, the Chinese codification of Hadley v Baxendale. Liquidated damages (weiyue jin, Article 585) are the most common remedy in Chinese commercial practice; the court may reduce them if excessively high (exceeding 30% of actual loss per the Supreme People’s Court’s Interpretation II) or increase them if too low, reflecting the principle of fairness.
Termination
Termination (zhongzhi) of contractual obligations may occur by performance, set-off, deposit, novation, release, or rescission (jietu). Rescission may be by agreement (Article 562), by operation of law (Article 563 — impossibility, anticipatory breach, delay in performance of a principal obligation after a notice period, or delay rendering the contractual purpose unattainable), or by judicial decision. A party who has rescinded the contract is entitled to restitution (each party returns what they received) and damages (Article 566). The right to rescind is subject to a limitation period of one year from knowledge of the grounds for rescission (Article 564), which is shorter than the general three-year limitation period for civil claims (Article 188).