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Bank Guarantees in Vietnam–China Transactions 2026

3 min readFLAT LAW FIRM
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Bank Guarantees in Vietnam–China Transactions: Types and Key Watchpoints

The Chinese buyer demands an advance payment guarantee. The Vietnamese seller worries its local bank won't be accepted. Who pays the fees? When does the guarantee expire? In Vietnam–China deals, bank guarantees are the common language of trust — but only when understood correctly.

Contents

1. What a bank guarantee is

A bank guarantee is a bank's written commitment to the beneficiary: if the applicant breaches its undertakings, the bank performs in its place within the guaranteed amount. It is a security measure for obligation performance under Vietnam's Civil Code 2015.

Its essence: the beneficiary no longer relies solely on the counterparty's finances — but on the issuing bank's standing. In cross-border deals where parties barely know each other, bank guarantees are nearly mandatory.

2. Guarantee types across the deal lifecycle

Each deal phase has its matching guarantee:

  1. Bid bond: the bidder won't withdraw or refuse to sign if awarded — the amount follows the tender documents and the issuing bank's terms;
  2. Performance bond: the seller/contractor performs per contract — the amount is agreed by the parties and set by the issuing bank based on its risk assessment;
  3. Advance payment guarantee: refunds advances if the recipient fails corresponding obligations — matching the advance;
  4. Payment guarantee: the buyer pays on time;
  5. Standby letter of credit: a hybrid of guarantee and documentary credit, common in international trade.

3. Independent vs accessory

The most important legal distinction:

  • Independent: the bank's obligation is separate from the underlying contract. The bank pays on a complying demand with conforming documents — without examining underlying contract disputes. The applicant may later sue to recover if the demand was abusive;
  • Accessory: tied to the underlying contract's obligations; the bank may invoke underlying-contract defenses.

Cross-border deals favor independent guarantees — beneficiaries don't want to be dragged into foreign contract disputes. Clarify at negotiation which type applies — don't let the bank issue a different one than expected.

4. Cross-border Vietnam–China structures

Vietnam–China practice typically uses counter-guarantee structures:

  • A bank in the applicant's country (e.g., a Vietnamese bank for the Vietnamese seller) issues the underlying guarantee;
  • A bank in the beneficiary's country (e.g., a Chinese bank for the Chinese buyer) confirms or advises it — adding a local commitment layer.

Agree at negotiation:

  • The specific issuing/confirming banks (beneficiaries usually have accepted-bank lists);
  • Governing law and language (English common; bilingual EN–CN or EN–VI);
  • The guarantee form (bank's template vs. negotiated form).

5. Watchpoints: tenor, fees, demands

  • Tenor: must cover the entire risk period — including post-expiry claim periods. A guarantee expiring before breach discovery = a wasted tool;
  • Fees: charged as % p.a. on the guaranteed amount; allocation by agreement (usually the applicant);
  • Demand formalities: check carefully — written demand? which documents? bank processing time? A defective demand can be rejected;
  • Reducing amounts: for long-term performance bonds, negotiate step-downs as milestones complete — lowering the applicant's cost.

FAQ

Full 5 Q&As (concept, types, independent/accessory, which country's bank, tenor and fees) in frontmatter `faq_items`.

When to engage counsel

When you need: negotiating guarantee terms in Vietnam–China contracts; reviewing bank guarantee texts (independent vs accessory, demand conditions); handling guarantee-demand disputes; or structuring cross-border counter-guarantees. Contact FLAT Law Firm — hotline 0988424851.

  • Civil Code 2015 (91/2015/QH13), effective 01/01/2017 — security measures for obligation performance (guarantee).