Methods to create security in the making of loans, in business transactions or other civil activities in case the debtor fails to pay its due debts

According to the Chinese laws, in the making of loans, in business transactions or other civil activities, a security interest may be created according to law. For creation of a security interest, a security contract shall be concluded in accordance with the legal provisions. It should be also noted that the scope of the secured property right includes the principal creditor’s right and the interest benefiting from it, liquidated damages, damages and expenses for safekeeping of the property used as security and for enforcing security interest. Where the parties concerned agree otherwise, their agreement shall prevail.

In any of the following circumstances, the security interest shall extinguish: (1) The principal claim extinguishes; (2) The security interest is enforced; (3) The creditor waives the security interest; or (4) Other circumstances provided for by law under which the security interest extinguishes.