How to Assess an EPC Project Performance Bond in China: the 10% Cap, the Four Lawful Deposits, Bank Guarantees Instead of Cash, the 3% Quality Retention and Its Defect Period (Generally 1 Year, at Most 2), the Housing/Municipal Rule That a Tenderer Requiring the Winner's Performance Guarantee Gives a Payment Guarantee, Clause 4.2 of the Housing/Municipal Model EPC Contract, and General vs Joint-and-Several Suretyship

Short answer. In China a performance bond is one of only four construction deposits the law allows (bid, performance, quality and migrant-worker wages); everything else was abolished in 2016. Where a project is tendered under the Tendering and Bidding Law, its implementing regulations (2017 text) cap the performance bond at 10% of the awarded contract price; under the Government Procurement regulations it is also capped at 10% and must be non-cash. Policy since 2016 pushes bank, guarantee-company and insurance guarantees in place of cash, and the 2025 SME payment regulation obliges public bodies and large enterprises to accept financial-institution guarantees from SMEs and to return deposits promptly. Quality retention is separate and capped at 3% of the settled price for a defect period of generally one year and at most two, as agreed; it cannot be retained before completion where a performance bond has been paid. The model EPC contract GF-2020-0216 is a recommended, non-mandatory text whose stated scope is EPC contracting for housing-construction and municipal-infrastructure projects; it leaves form, amount and timing to the particular conditions but requires validity until completion acceptance and release within 7 days after it. A power, wind, PV or storage EPC contract does not follow it automatically: check whether the actual contract adopts it and what its particular conditions say. The Civil Code decides how hard the guarantee bites: a general surety may, subject to listed exceptions, refuse to pay until the main dispute has been adjudicated and enforcement against the debtor has failed; a joint-and-several surety cannot; and an unspecified form defaults to general. This guide walks through each layer.

1. Which deposits are allowed and how large

The State Council General Office's 2016 notice abolished all construction deposits except lawfully established bid, performance, quality and migrant-worker-wage deposits, required the four retained types to be payable by bank guarantee, required timely return with late-return penalties, capped quality retention at 5% of the settled price and barred holding a quality deposit before completion where a performance bond has already been paid. The 2017 quality-deposit Measures then lowered the cap: total retention, or a replacing bank guarantee, may not exceed 3% of the settled contract price.

The performance-bond ceilings are in two regulations. The Tendering Law regulations (2017 revision text) cap it at 10% of the awarded contract price (and bid security at 2% of the estimated value). The Government Procurement regulations cap it at 10% of the procurement contract value and require non-cash form — cheque, draft, promissory note or a guarantee letter from a financial or guarantee institution. CNWattHub reading: whether a given energy EPC project is subject to either regulation is a legal question this guide's sources do not answer; where neither applies, the 10% figures are a reference point from these regimes rather than a cap imposed on the contract.

2. Cash or guarantee

The 2019 six-department guiding opinions (scoped to housing and municipal infrastructure works) promote bid, performance, quality and wage-payment guarantees, allow bank, guarantee-company and insurance guarantors, cap a quality bank guarantee at 3% of the settled price, require wage-payment guarantees to be independent, pay-on-demand guarantees, and call for revised guarantee model texts and electronic guarantees. The 2024 State Council General Office opinions on the tendering market call for electronic guarantees (or insurance) to be promoted across the board for bid, performance and quality deposits, and say quality deposits should generally no longer be collected for insured first-unit major equipment.

The revised Regulations on Payment to SMEs (State Council Order No. 802, in force 1 June 2025) prohibit any deposit beyond the four lawful types, require collection ratios and methods to follow law and national rules, bar government bodies, public institutions and large enterprises from restricting deposits to cash, require them to accept financial-institution guarantees from SMEs and to reconcile and return deposits promptly after the guarantee period, and treat refusal or late return as a violation.

CNWattHub reading: for an SME contractor facing a government body, public institution or large-enterprise owner, the right to pay by a financial-institution guarantee is now a regulation, not a policy preference.

3. The owner's side: payment guarantee and mutual exclusivity

The 2019 opinions (housing and municipal works) state that a tendering owner who requires the winning bidder to provide a performance guarantee must at the same time provide a payment guarantee to it. Both the 2016 notice and the 2017 Measures bar an owner from holding a quality deposit before completion where a performance bond has been paid, and the 2017 Measures add that where a quality guarantee or quality insurance is used the owner may not also retain a deposit. The housing/municipal model EPC contract carries the same rule (14.6): where a performance guarantee has been provided before completion, the owner may not also demand a quality deposit.

4. Quality retention and the defect period

The 2017 Measures define the quality deposit as money withheld from the contract payments due to secure repair of defects during the defect liability period, generally one year and at most two, as agreed; a bank guarantee may replace retention, and where a quality guarantee or quality insurance is used no deposit may be retained; the period starts at completion acceptance, or automatically 90 days after the contractor's completion report if the owner delays acceptance. For EPC specifically, the 2019 EPC measures (housing and municipal projects) let the owner set performance-guarantee requirements in the tender documents, recommend the MOHURD model contract, and make the EPC contractor responsible for warranty obligations regardless of how it allocates them to subcontractors.

5. Clause 4.2 of the model EPC contract

GF-2020-0216 (issued by MOHURD and SAMR on 25 November 2020, effective 1 January 2021, replacing GF-2011-0216) states in its explanatory notes that it applies to EPC contracting for housing-construction and municipal-infrastructure projects and is a recommended, non-mandatory text that parties may refer to. Its general conditions leave the form, amount and timing of the performance guarantee to the particular conditions; allows bank guarantees or guarantee-company guarantees; has a consortium submit through its members or its lead member; requires the guarantee to stay valid until the owner's completion acceptance, with return or release within 7 days after acceptance passes; and allocates the added cost of extending it to the contractor where the delay is for contractor reasons and to the owner where it is not. Elsewhere the model lets the owner deduct delay liquidated damages from progress payments, the final account or the performance guarantee (8.7.2); lists failure to provide the guarantee among the owner's termination grounds (16.1.1); requires the owner, after a termination by the contractor for owner default, to pay the listed sums and return the guarantee within 28 days (16.2.3); and bars a quality deposit where a performance guarantee has been provided before completion (14.6).

CNWattHub reading: other energy EPC contracts (power, wind, PV, storage) are not automatically governed by this housing/municipal model text; the clauses above bind only where the actual contract adopts it, and its particular conditions may refine or replace them, so check both. The model text does not fix a percentage; the 10% caps above apply only where a tendering or procurement regime applies. Negotiate the amount, the trigger wording and the expiry date in the particular conditions, and check that the expiry matches the expected completion-acceptance date plus a margin.

6. General or joint-and-several: the Civil Code

The Civil Code defines a suretyship contract and distinguishes general suretyship from joint-and-several suretyship; where the form is not agreed or unclear, general suretyship applies. A general surety may refuse to pay until the main dispute has been adjudicated or arbitrated and enforcement against the debtor has failed (with listed exceptions); under joint-and-several suretyship the creditor may claim directly from the surety within its scope. Where no suretyship period is agreed, it is six months after the main debt falls due.

CNWattHub reading: where a performance guarantee is a suretyship under the Civil Code and is silent on the form, the default is general suretyship, under which the owner must first pursue the contractor through adjudication and enforcement unless one of the Code's exceptions applies (debtor untraceable with no assets, bankruptcy accepted, proven inability to perform, or written waiver by the surety); whether a given letter is a suretyship or an independent (pay-on-demand) guarantee is a separate question this guide's sources do not settle. Owners who want pay-on-demand protection must say so; contractors should read what they have given. The 2019 opinions' demand that wage-payment guarantees be independent, pay-on-demand instruments shows the policy distinction between the two.

Reading table

Checklist

CNWattHub editorial method, not a sourced rule:

1. Identify the regime: Tendering Law, Government Procurement, or neither; apply the 10% cap only where it legally applies.
2. Insist on the four-deposit limit; refuse any other deposit and cite the 2016 notice and the 2025 regulation.
3. Offer a guarantee instead of cash; an SME dealing with a government body, public institution or large enterprise has a regulatory right to have a financial-institution guarantee accepted, and the 2019 opinions also contemplate guarantee-company and insurance guarantors.
4. Where the 2019 opinions apply (housing/municipal tenders), ask the tenderer for the mirror payment guarantee; negotiate one elsewhere.
5. Check whether the actual contract adopts GF-2020-0216 (a housing/municipal model text); if it does, fix form, amount, trigger wording, expiry and release mechanics in the particular conditions of clause 4.2, and if not, in the contract's own guarantee clause; align expiry with completion acceptance plus margin.
6. Check whether the guarantee is general or joint-and-several (or an independent pay-on-demand instrument) and price the difference.
7. Do not accept quality retention before completion while a performance bond is in place; cap retention at 3% and agree a defect period of generally one year, at most two.

Scope limits

Two State Council regulations, two State Council General Office documents, three MOHURD-led documents (2017, 2019, 2020 model contract and notice), the 2019 EPC measures, the Civil Code (local-government copy) and the 2025 SME payment regulation only. The 2019 opinions, the 2019 EPC measures and the GF-2020-0216 model contract are scoped to housing and municipal works (the model contract is a recommended, non-mandatory text); other energy EPC contracts are not automatically governed by them, so check whether the actual contract adopts the model text and what its particular conditions say. FIDIC forms, energy-sector EPC templates, guarantee fees and court decisions are not cited. Not legal or financial advice.