Quick answer: Paying a Chinese supplier a “deposit” does not automatically give you a right to double repayment. First establish whether the parties agreed to a Chinese-law earnest-money deposit (定金), what amount qualifies, and whether the breach meets the legal trigger. An ordinary advance payment is a different starting point.
Scope: mainland China commercial contracts where the PRC Civil Code deposit rules apply. International sales may also require a governing-law and CISG analysis. Sources checked: 6 October 2026. This is general information, not an assessment of a particular claim.
What does “deposit” mean in your supplier contract?
Start with the signed contract, purchase order, pro forma invoice and payment correspondence together. The English word “deposit” can describe a price installment or security for performance. A bilingual mismatch can therefore change the dispute you actually need to resolve.
| Payment description | Question to resolve | Evidence to collect |
|---|---|---|
| Advance payment / 预付款 | When is it credited, earned or refundable? | Payment milestones, cancellation terms and production records. |
| 订金 or other security terminology | Did both parties agree that it has the legal nature of 定金? | Full clause and negotiations, not just a bank-transfer label. |
| 定金 / earnest-money deposit | What obligation does it secure, and what amount was actually delivered? | Deposit clause, transfer confirmation and receipt acknowledgment. |
Article 67 of the Supreme People’s Court’s contract interpretation says that payments described by various security or advance-payment terms do not attract the statutory deposit penalty where the parties did not agree on their earnest-money nature. If that nature is agreed but the type is unclear, the interpretation addresses treatment as a breach-security deposit. Read the official interpretation, Article 67 (Chinese).
The 20% limit is not a general ban on larger advance payments
Under Civil Code Article 586, the deposit contract is established upon actual delivery. The amount with statutory earnest-money effect cannot exceed 20% of the main contract’s subject amount; an excess does not have that deposit effect. This distinction does not, by itself, make a 30% advance-payment arrangement unlawful or make the entire 30% eligible for doubling. Civil Code, Article 586 (official Chinese text).
Before calculating a claim, create a separate line for each transfer. Record its currency, date, recipient, contract reference, stated purpose and any refund already received. Do not combine unrelated orders because the same factory received the money.
When can double repayment apply?
Article 587 links the deposit consequence to non-performance or defective performance that defeats the contract’s purpose. A qualifying breach by the recipient requires double return; a qualifying breach by the payer means the payer cannot recover the deposit. A missed update or a minor delay is not automatically enough. Article 588 also requires a choice between agreed liquidated damages and the deposit clause, while addressing losses exceeding the deposit amount. Civil Code, Articles 587–588.
The interpretation adds important qualifications: mutual breaches defeating the purpose, accepted partial performance and force majeure can alter or exclude the penalty. With accepted partial performance, the unperformed proportion generally matters unless the remaining failure defeats the whole purpose. Supreme People’s Court interpretation, Article 68.
A worked example: a RMB 100,000 order and RMB 30,000 paid
Illustrative calculation, not a client case: Assume the parties clearly agreed to earnest-money treatment, RMB 30,000 was delivered, and the supplier’s breach qualifies for the penalty. No goods were accepted, and there are no competing claims or refunds.
- Main contract amount: RMB 100,000.
- Maximum amount with statutory deposit effect: RMB 20,000.
- Double return of that qualifying amount: RMB 40,000 in total, including the original RMB 20,000.
- The remaining RMB 10,000 needs a separate repayment basis. If fully refundable as an advance, the combined illustrative repayment would be RMB 50,000.
It is not automatically RMB 60,000. Nor should the original qualifying RMB 20,000 be added again to the double-return figure. Change any assumption—such as the agreed payment nature, accepted deliveries or supplier counterclaims—and the calculation must be revisited.
Build a refund file before sending a demand
- Identify the contracting supplier. Compare its Chinese legal name with the contract and payment recipient. Explain any collection agent or affiliated company.
- Preserve the entire agreement. Keep both languages, attachments, amendments and the correspondence explaining the payment.
- Document the failure. Record promised and actual milestones, inspection results, proposed remedies and why the missing performance matters commercially.
- Separate the remedies. List advance repayment, the deposit consequence, liquidated damages and evidenced losses separately for legal assessment.
- Check the dispute route. Locate the arbitration or court clause and obtain advice on notices, time limits and available recovery measures before making an irreversible decision.
A useful internal worksheet has six columns: payment, agreed purpose, supporting document, supplier position, buyer position and unresolved question. This makes an initial consultation more productive than sending a folder of screenshots without a chronology.
Questions overseas buyers ask
Does “non-refundable deposit” end the discussion?
No single label settles all issues. Identify the applicable law, the agreed payment mechanism, the reason performance stopped and the basis on which the supplier says it may retain the money. Preserve the exact clause instead of paraphrasing it.
Can I demand double repayment because production is late?
Do not assume that lateness alone proves the statutory trigger. Explain the contractual deadline, any extensions, the commercial purpose known to the supplier and whether the delay can still be remedied.
What should the next contract say?
Make the payment category explicit in both languages. Specify its amount, secured obligation, crediting mechanism and agreed refund process. Allocate sample approval, inspection and shipment responsibilities, and check how the deposit clause interacts with other remedies.
Related guidance and contract support
For the wider transaction, see our international trade contract checklist and guide to drafting English contracts for China transactions. If dishonesty is suspected, read supplier fraud versus contract breach before treating a commercial dispute as a criminal case.
JY Law Firm’s China-related contract work includes drafting, review, negotiation support and dispute assessment. For a contract and payment review, initially provide the parties’ names, transaction value, deadline and a short chronology. Arrange a suitable channel before sending confidential contracts or bank records. Learn more about the firm’s scope on About Us.
