The Supreme People's Court of China recently issued an
interpretation on how to calculate the interest accrued on delayed
payment – Interpretation of the Supreme People's
Court of Several Issues Concerning the Applicable Law for
Calculating Interest On Delayed Payment in the Enforcement
Action (FaShi  No.8).
The Interpretation made a clear distinction between General
Interest and Penalty Interest, provided guidance on when and how to
calculate Penalty Interest, including interest payment in foreign
According to this interpretation, the interest accrued on late
payment has two components: (i) interest agreed between the parties
under the contract and recognized by the court
("General Interest") and (ii) penalty
interest provided by the statute ("Penalty
If the contract between the parties did not provide for any
interest on the late payment, or the court fails to recognize the
interest stipulation, plaintiff is not entitled to collect the
General Interest from defendant.
Under the prior regulation, the court applies two times the
benchmark loan interest rate published by the People's Bank of
China to calculate the Penalty Interest. In this
Interpretation, the court forfeited this standard and adopted a
fixed rate of 0.0175% per day, with reference to the prevailing
benchmark loan interest of 6.4% per year to calculate the Penalty
Interest. The interpretation provides that only the outstanding
principal amount is subject to Penalty Interest, not the amount of
General Interest. The formula for calculating Penalty Interest is
as follows: Outstanding principal amount x 0.0175% x Number of
The Penalty Interest starts to accrue from the first day
following payment due date or the effective date of the court
verdict if the verdict does not provide for such due date.
The penalty interest is calculated up to the date of appropriation
in the case of deposit, or the date of completion of the
transaction in the case of auction or disposition of
defendant's property to satisfy its payment obligation.
The Penalty Interest will be tolled during the suspension of the
enforcement action provided such suspension is not due to the
reason of defendant.
The asset of the defendant should be used to satisfy the
outstanding principal amount first if defendant does not have
sufficient asset to satisfy all its debt obligations i.e. principal
and interest, unless the parties have specific agreement on the
If the payment obligation is denominated in foreign currency,
plaintiff can elect to have the Penalty Interest paid either in
foreign currency or Renminbi. For payment in Renminbi, the foreign
exchange rate published by the China Foreign Exchange Trade System
on the due date of the Penalty Interest will be applied to convert
foreign currency to Renminbi. The interest rate of the
Penalty Interest paid in foreign currency is same as that of
Renminbi payment i.e. 0.0175% per day.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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