“24%” the limit of the annual interest in contract according to the Chinese Law

How many percentages could be or are allowed to be charged according to the Chinese Law, if the parties intend to rate annual interest in their contract? The annual interest might be set e.g. for a loan, other expenses or as compensation of default.

On August 9, 2017 the Chinese Supreme People´s Court has published its “Opinions on Further Strengthening the Financial Judgment” (hereinafter referred to as “Opinions”). Art. 2 of these Opinions stipulates: Concerning financial loan contracts, if the interest of loan, compound interest, liquidated damages and other expenses together demanded by the loaner are extremely high and significant deviated from the actual loss, the people´s court can reduce the payment beyond the range of 24% annual interest upon request of the party liable. This rule sets not only a limit to the annual interest, but also a cap of all the expenses which can be expected and charged by loaner.

Besides loan contract, this 24% limit is also applied by people´s court as a rule of thumb for other kinds of contracts to determine the fair total sum of the penalty, compensation, interest and the other expenses related.

It is important to make clear that the Chinese Supreme People´s Court doesn´t state in its Opinions that such contract clause per se invalid, if the stipulated interest, penalty or compensation etc. higher than 24% of the subject amount. If the payment beyond this limit has been remitted already, the court won´t cancel the made payment. To apply for reduction of the overcharged amount, the party liable must assert the claim at people´s court before payment.

 

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