What 违约金 means
Parties may agree that a breaching party pays a specified amount or a formula-based amount. A court or arbitral tribunal may adjust an amount that is materially too low or too high relative to the loss and applicable legal standards.
Foreign contracts sometimes assume the stated number is automatically final. In China, drafting should connect the clause to the breach, evidence and loss framework rather than relying only on a punitive label.
Where you see the term
Translation note
“Liquidated damages” is usually the best functional translation. “Penalty” can mislead common-law readers because PRC law applies its own statutory adjustment rules.
Primary legal basis
Example
A supply contract sets damages at 0.5% of the purchase price per day of delay. A tribunal may consider the actual loss and circumstances when deciding whether adjustment is appropriate.
Primary authorities.
18 Sep 2026