Appendix 3.2: Basic Commercial Transactions

He Jiang, Centre for Market and Trade Development (CMTD)

Use of cheques in China

Types of cheques

There are two types of cheques commonly used by Chinese business entities and government institutions “ cash cheques (for withdrawing cash and transferring funds) and transfer cheques (for bank transfer only).

Validity of cheques

Both types of cheques shall be made to the order of the issuer. The minimum amount payable by cheque is 100 yuan. The effective period of payment is five working days (starting from the date of issue). The cheque is invalid after expiry.

Issuing cheques

The cheque must be written out in black or carbon ink. The use of pencil or ball pen is not accepted. In case of a false claim as a result of writing the cheque with an unacceptable writing instrument, the issuer of the cheque will be responsible for the consequences.

When issuing a cheque, the name of payee, date of issue, amount in both Arabic numbers and Chinese numerical characters and a description of payment must be clearly written on the cheque. For payment by a transfer cheque for an amount that cannot be decided at the time of payment, it is permissible to leave the amount blank. Alteration of the amount (in both Arabic numbers and the Chinese numerical characters) or the name of payee is not allowed. If changes are to be made to other details on a cheque, they must be validated by additional stamping of the issuer's company seal which the bank will check against sample seals in their files.

The issuer of a cheque should make payment within the limit of its bank balance. It is not allowed to over- draw on the bank account. The cheque must be signed with a valid signature matching the bank's records. The issued cheque should bear all the required stamps which shall conform to the samples filed at the bank. Cheques issued in violation of the bank's rules and regulations will be rejected and the issuer subject to a fine of 5 per cent of the issued amount or a minimum of 50 yuan in case the issued amount is less than 1,000 yuan.

The cheque books made available to corporate or institutional users are confined to the exclusive use of authorised issuers only. Transfer of the cheque or cheque book to any unauthorised user in any form is illegal.

Receipt of cheques

The recipient should examine the cheque to make sure that all items of the cheque are correct. When receiving payment by a transfer cheque, the recipient has the right to request the holder of the cheque to produce documents that will sufficiently prove the identity of the holder such as ID card, and record the details of the supporting documents on the back of the cheque.

The cheque should be properly back-endorsed by the recipient when negotiating payment at the payer's bank. The bank may request documents of proof to verify the identity of the drawer before release of payment.

Loss of cheques

If an issued cash cheque is lost, the issuer should report the loss to the bank and apply for suspension of payment. A letter of reference or relevant document of proof bearing stamps which conform to the samples filed at the bank must be produced when reporting.

For lost bank transfer cheques either signed or blank, the banks do not accept reports for losses. The issuer may request assistance from the intended payee. The banks assume no responsibility for economic damages resulting from loss of cheques.

In Beijing there is a telephone enquiry service for reporting lost cheques or verifying if a received cheque is a reported lost cheque. The telephone number is 185.