Contract Law in Vietnam vs China: 7 Key Differences

Table of contents

• 1. Why compare: same civil-law family, different logic
• 2. Difference 1: the system of governing sources
• 3. Difference 2: conditions for a contract to take effect
• 4. Difference 3: penalties — Vietnam's 8% hard cap vs China's adjustment mechanism
• 5. Difference 4: Vietnam's deposits vs China's 定金
• 6. Difference 5: force majeure
• 7. Difference 6: termination and consequences
• 8. Difference 7: signing practice — seals, language, governing law
• 9. Summary table of the 7 differences
• 10. Frequently Asked Questions
• 11. When to work with a lawyer
• References

Vietnam and China both belong to the civil-law tradition, both have voluminous civil codes governing contracts, and both are members of the 1958 New York Convention on foreign arbitral awards. These commonalities easily create the impression that contracting with a Chinese partner is "just like contracting domestically." The reality is the opposite: from penalty caps and deposit regimes to the role of the company seal, the two countries' contract laws differ enough to change a dispute's outcome.

This article compares Vietnamese contract law (Civil Code 2015, Commercial Law 2005) with Chinese contract law (the Civil Code, 中华人民共和国民法典, effective 01/01/2021) across the seven most practically significant differences for businesses.

1. Why compare: same civil-law family, different logic

Both Vietnam and China build contract law on codified foundations, with a "civil code as general law, specialized statutes as special law" structure. But the detailed logic differs, rooted in distinct legislative traditions and adjudication practice.

For Vietnamese businesses dealing with Chinese partners — importing inputs, processing, EPC, distribution — contracts are often drafted per one side's habits with little thought to how a clause will be interpreted when a dispute lands in the other country. Three classic risks: (1) a penalty clause drafted to Vietnamese standards gets cut by a Chinese court as "excessive"; (2) a large deposit is partially invalidated for exceeding China's 20% 定金 cap; (3) fights over contract validity simply because the Chinese side's company seal is missing. The seven differences below help businesses draft contracts that survive both systems.

2. Difference 1: the system of governing sources

Vietnam: contract law sits in two main instruments — the Civil Code 2015 (general rules on civil transactions and contracts) and the Commercial Law 2005 (special rules for commercial contracts). The special law prevails: contracts between merchants for profit follow the Commercial Law 2005 (e.g., the 8% penalty cap in Article 301); matters it does not regulate fall back to the Civil Code 2015.

China: since 01/01/2021, the Civil Code (民法典) consolidates all civil law, with Book 3 on contracts (合同编) replacing the former 1999 Contract Law. The Contract Book has three parts: general provisions (通则) on formation, validity, performance, modification, assignment, termination, and breach liability; typical contracts (典型合同) detailing each type (sale, lease, processing, construction…); and quasi-contracts (准合同) on negotiorum gestio and unjust enrichment. Accompanying judicial interpretations of the Supreme People's Court — notably the 2023 interpretation on the Contract Book's general provisions — play a major guiding role in adjudication.

Practical meaning: when researching Chinese law, look in the 民法典合同编, not a standalone "Contract Law" as before 2021. Many online materials still cite the repealed 1999 Contract Law — discard them.

3. Difference 2: conditions for a contract to take effect

Vietnam: Article 117 of the Civil Code 2015 sets three validity conditions for civil transactions: participants with suitable legal personality and civil act capacity; fully voluntary participation; purposes and contents not violating legal prohibitions or social ethics. Transactions violating prohibitions are void (Article 123); sham transactions are void (Article 124).

China: Article 143 of the Chinese Civil Code sets three requirements for a "civil juristic act" (民事法律行为): capacity commensurate with the act; genuine expression of intent; no violation of mandatory provisions of laws and administrative regulations, and no offense against public order and good morals (公序良俗). Notably, Chinese law distinguishes "mandatory provisions going to validity" (效力性强制性规定) from "managerial mandatory provisions" (管理性强制性规定) — only violating the former voids the act. This doctrine, developed by the Supreme People's Court, avoids voiding contracts merely for breaching an administrative-managerial rule.

Practical meaning: China's voidness standard is in many cases "softer" than a rigid reading of Vietnam's legal prohibitions. When drafting compliance clauses in contracts with Chinese partners, anticipate how Chinese courts classify the nature of a violated provision.

4. Difference 3: penalties — Vietnam's 8% hard cap vs China's adjustment mechanism

This is the difference with the most direct financial impact.

Vietnam — a hard 8% cap for commercial contracts. Article 418(2) of the Civil Code 2015 lets parties freely agree penalty levels, "except where relevant laws provide otherwise." And that "otherwise" is Article 301 of the Commercial Law 2005: penalties for breach, or aggregate penalties for multiple breaches, as agreed by the parties but not exceeding 8% of the value of the breached contractual obligation. Adjudication practice shows the excess over 8% is typically not recognized. For purely civil (non-commercial) contracts, no cap applies — though the civil/commercial boundary is not always clear.

China — no hard cap, but courts may adjust. Article 585 of the Chinese Civil Code allows parties to agree 违约金 (breach penalties) or damages calculation methods. The distinctive part is paragraph 2: if the agreed penalty is lower than actual loss, courts or tribunals may increase it at a party's request; if manifestly excessive (过分高于) over actual loss, they may reduce it at the breaching party's request. The Supreme People's Court's 2023 judicial interpretation concretizes: penalties exceeding 30% of loss may generally be deemed "excessive" — but only as a reference; courts also weigh performance degree, parties' fault, transaction nature, and fairness and good-faith principles.

Substantive comparison: Vietnam uses a "hard cap on the breached obligation's value" (8%) with no need to prove loss; China uses an "adjustment mechanism tied to actual loss" (30% reference) requiring loss proof. A 15% penalty clause: in Vietnam (commercial contract) the excess over 8% is almost certainly cut; in China 15% may survive if actual loss is large enough, or be reduced if loss is small. Vietnamese businesses negotiating with Chinese partners must understand that a "deterrent" penalty figure may not survive a Chinese court.

5. Difference 4: Vietnam's deposits vs China's 定金

Vietnam — uncapped deposits. Article 328 of the Civil Code 2015: the depositing party delivers deposit property to secure formation or performance. The law sets no cap; parties agree freely. Notably, "deposit forfeiture" applies by statute: even without contractual agreement, the breaching party suffers Article 328(2) consequences (depositor in breach loses the deposit; recipient in breach refunds double). Adjudication tends to reject unreasonably enormous forfeitures, but there is no arithmetic cap in the statute.

China — 定金 capped at 20%. Article 586 of the Chinese Civil Code: 定金 is agreed by the parties but must not exceed 20% of the principal contract's value; the excess has no deposit effect. The "lose it / double it" rule (定金罚则) mirrors Vietnam's: the delivering party in breach loses the right to reclaim; the receiving party in breach refunds double.

Practical meaning: this is the most common trap in Vietnam–China deals. Vietnamese businesses accustomed to 30–50% deposits under Vietnamese law find that, where the contract chooses Chinese governing law, the portion above 20% loses deposit effect — in a dispute, the Vietnamese side may lose much of the "leverage" it thought it had. Solutions: keep 定金 within the 20% cap and secure the rest differently (bank guarantees, penalties), or carefully consider which law governs the deposit clause.

6. Difference 5: force majeure

Vietnam: Article 156 of the Civil Code 2015 defines force majeure as an event occurring objectively, unforeseeable, and insurmountable despite all necessary measures within one's capability. A party breaching due to force majeure is exempt from civil liability, unless otherwise agreed or provided by law (Article 351).

China: Article 180 of the Chinese Civil Code defines 不可抗力 as an objective circumstance unforeseeable, unavoidable, and insurmountable. Article 590: a party unable to perform due to force majeure is exempt partially or wholly depending on the impact's degree; the invoking party must promptly notify the other side and provide evidence within a reasonable time.

The subtle difference: both definitions share the three "unforeseeable–unavoidable–insurmountable" elements, but Chinese law emphasizes the invoking party's duty to notify and evidence, and degree-based exemption (partial or total). In contracts with Chinese partners, force-majeure clauses should list specific qualifying events (pandemics, import/export bans, war, natural disasters…) and set notification procedures and evidence deadlines — Chinese courts scrutinize whether the invoking party fulfilled its notification duty.

7. Difference 6: termination and consequences

Vietnam: the Civil Code 2015 distinguishes rescission (Articles 423–425: one party may rescind when the other materially breaches) from unilateral termination of performance (Article 428: parties may agree on unilateral termination rights; the terminating party must notify immediately). Consequences: the contract ends from rescission/termination; parties need not continue unperformed obligations; the party that performed may demand payment.

China: Articles 562–566 of the Chinese Civil Code govern 解除 (termination): parties may agree to terminate; one party may unilaterally terminate on statutory grounds (the other's material breach frustrating the contract's purpose, delayed performance after demand, etc.) or per agreement. The terminating party must notify the other; the contract ends when the notice reaches the other party — unless the other objects and asks a court/tribunal to confirm the termination's validity.

Practical meaning: both systems require notice for unilateral termination, but objection mechanisms differ. In China, the notified party may object and put the termination's validity before a court/tribunal — meaning termination can be left "hanging" until a ruling. A Vietnamese business receiving a termination notice from a Chinese partner should not assume the contract has ended but assess and respond promptly per proper procedure.

8. Difference 7: signing practice — seals, language, governing law

Beyond substantive differences, three practical issues decide many Vietnam–China disputes.

The company seal (公章). In Chinese commercial culture, the round red company seal carries special legal weight: a properly sealed contract is generally treated as the company's will, even where the signatory's authority is disputed. Vietnamese businesses should require both the legal representative's signature and the company seal, and verify the signatory via business license and articles. Conversely, when Chinese partners ask the Vietnamese side to seal, comply fully — it builds trust in their business culture.

Contract language. Vietnamese–Chinese bilingual contracts are common, but many forget to designate a prevailing language for interpretation conflicts. The result is a "dispute within a dispute": before arguing who is right on obligations, parties fight over which translation is correct. Always designate one prevailing language, and have translations checked by someone versed in both law and language — never machine-translate legal instruments.

Governing law and dispute forum. Decide these two clauses together: choosing Vietnamese law suggests VIAC or Vietnamese courts; anticipated enforcement in China suggests arbitration (CIETAC, SIAC, HKIAC) with awards readily enforceable cross-border under the New York Convention. The cardinal sin is leaving both blank — each side will then try to drag the dispute to its "home ground," and jurisdictional litigation can cost more than the underlying dispute.

9. Summary table of the 7 differences

10. Frequently asked questions

Should a contract with a Chinese company choose Vietnamese or Chinese governing law?

There is no one-size-fits-all answer; it depends on where the contract is mainly performed, where assets sit, and where a judgment can be enforced. If performance and assets are mainly in Vietnam, Vietnamese law eases enforcement. If enforcement may be needed in China, note that Chinese courts are generally cautious about applying foreign law. Always state governing law in writing; without it, the court or tribunal determines applicable law under conflict rules — adding another layer of dispute.

In a Vietnamese–Chinese bilingual contract, which version prevails?

As the parties agree — the contract should designate a prevailing language for interpretation conflicts. Without designation, the dispute resolver interprets per the parties' common intent combined with the negotiation language, trade usage, and related evidence. Bilingual interpretation disputes are very costly, so a prevailing-language clause should never be omitted.

Is a Chinese company's seal (chop) as good as a signature?

In Chinese commercial practice, the company seal (公章) carries great legal weight — many transactions are treated as binding once properly sealed, even where the representative's signature is disputed. Vietnamese businesses should require both the legal representative's signature and the company seal, and verify the signatory's authority (business license, articles). Conversely, prepare your own seals properly — Chinese partners view them as a mark of seriousness.

Will a Chinese court uphold a 20% penalty clause against a Chinese partner?

It may be reduced. Article 585 of China's Civil Code lets courts or tribunals reduce an agreed penalty that is 'manifestly excessive' over actual loss, at the breaching party's request. Supreme People's Court guidance treats penalties exceeding 30% of loss as a sign of excess. So whether 20% survives depends on proving the non-breaching party's actual loss.

Is a deposit paid to a Chinese partner capped like 定金?

If the contract chooses Chinese governing law, 定金 is capped at 20% of the principal contract value under Article 586 of China's Civil Code; the excess has no deposit effect. Under Vietnamese law, deposits are uncapped. The key is to state clearly in the contract which law's deposit regime the payment follows, because the two regimes have different legal consequences.

Where should disputes with a Chinese company be litigated?

Per the contract's dispute-resolution clause. With a valid arbitration clause (e.g., VIAC, CIETAC, SIAC, HKIAC), arbitration applies and awards are enforceable in both Vietnam and China under the 1958 New York Convention (both are members). Without arbitration, determining court jurisdiction is more complex and enforcing one country's civil judgment in the other faces practical barriers.

11. When to work with a lawyer

Vietnam–China transactions are classic cross-border deals where one flawed clause can cost an entire foreign lawsuit. Counsel versed in both systems should join for:

• Drafting and negotiation: designing penalty and deposit clauses that survive both systems; governing-law, prevailing-language, and dispute-resolution clauses matched to the anticipated enforcement venue.
• Partner due diligence: verifying legal status, operating condition, legal representatives, and signing authority — reducing the risk of contracting with unauthorized or shell entities.
• Breach and dispute handling: assessing penalty-adjustment exposure in Chinese courts, calculating provable loss, choosing among negotiation, arbitration, and litigation.
• Cross-border enforcement: recognition and enforcement of arbitral awards in Vietnam or China under the 1958 New York Convention.

FLAT Law Firm's dedicated China Desk supports businesses across the full Vietnam–China transaction lifecycle — hotline 0988424851. Engage us before signing so your contract stands firm on both sides of the border.

References

• Civil Code 2015 of Vietnam (91/2015/QH13); Commercial Law 2005 (36/2005/QH11).
• Civil Code of the PRC (中华人民共和国民法典); SPC 2023 interpretation on the Contract Book's general provisions.
• Cross-checked at time of writing (28/9/2026).

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