Construction and Infrastructure Disputes in China

How construction and infrastructure disputes in China are decided

Construction and infrastructure disputes in China are usually about money, time and quality: unpaid progress payments and final accounts, delay and acceleration, variations, defects, and the allocation of risk when prices or ground conditions change. They are decided by the people's courts or, where the contract contains a valid arbitration clause, by a Chinese or international arbitral tribunal. In either forum the starting point is the Civil Code, which since 1 January 2021 has contained a dedicated chapter on construction project contracts, supplemented by detailed judicial interpretations from the Supreme People's Court (SPC).

Three features make the Chinese environment distinctive for foreign contractors, employers, investors and lenders. First, the validity of the contract itself is often in play, because rules on mandatory tendering, contractor qualifications and subcontracting are strictly enforced and a breach can render the contract void. Second, valuation disputes are frequently resolved through court-appointed cost appraisal rather than party expert evidence alone. Third, contractors enjoy a statutory priority right over the proceeds of the project they built, which interacts with mortgages held by banks and the rights of home buyers.

For a foreign party, the practical question is rarely which rule applies in the abstract. It is whether the contract, the project records and the dispute clause will hold up when a claim is made, and whether security can be obtained early enough to make an eventual award or judgment worth having. The sections below set out the legal framework as at November 2026, the main recurring issues, the forums available, and the steps that tend to decide outcomes. Specific PRC law questions should always be confirmed with a licensed PRC law firm.

The legal framework for construction disputes

The core rules sit in the Civil Code, Book III, Chapter 18 on construction project contracts. These provisions cover contract formation, the prohibition on unlawful transfer and subcontracting, completion acceptance, payment, and the contractor's priority right over the project. Where a construction contract is void but the works pass acceptance, the Civil Code allows the contractor to be compensated by reference to the agreed price, so invalidity does not necessarily wipe out the commercial bargain. General contract rules, including change of circumstances and penalty adjustment, also apply.

The Tendering and Bidding Law determines which projects must be procured through public tender, which commonly includes infrastructure, public utilities and projects funded by state capital above specified values. Construction law and regulations govern contractor qualification grades and site safety, and the Regulations on Ensuring Payment of Wages to Migrant Workers, in force since 1 May 2020, impose dedicated wage accounts and joint responsibilities on general contractors.

The SPC's Interpretation (I) on construction contract disputes, effective 1 January 2021, remains the backbone of judicial practice. It deals with matters such as the effect of unlawful tenders, the date of completion, how to value works when a contract is void, and the time limit for exercising the contractor's priority right, which may not exceed 18 months from the date on which the employer should have paid. In 2026 the SPC added a second interpretation, discussed below, which changes several practical rules for new cases.

A further instrument matters for payment claims. The revised Regulations on Ensuring Payment to Small and Medium-sized Enterprises, issued by the State Council and in force since 1 June 2025, set a 60-day payment deadline in the situations they cover, restrict the use of commercial bills to delay payment, and prohibit making payment to a small or medium-sized supplier conditional on receiving payment from a third party. Back-to-back and pay-when-paid clauses in subcontracts with such suppliers therefore need careful review.

What the SPC's 2026 interpretation changes

On 29 June 2026 the SPC issued its Interpretation (II) on the application of law in the trial of construction contract disputes, which took effect on 30 June 2026. It applies to first-instance cases accepted after that date, and where it differs from earlier interpretations it prevails. For anyone currently negotiating, administering or preparing claims under Chinese construction contracts, it is the most important development since the Civil Code.

The interpretation also addresses unlawful transfers and subcontracts, generally steering compensation claims by the party that took such work towards the contractor that let it rather than an employer with which it has no contract, and it confirms routes for migrant workers to recover unpaid wages from the developer, general contractor or subcontractor. Because the rules apply by reference to the date a case is accepted, the timing of filing can matter where a dispute straddles 30 June 2026.

Common issues in construction and infrastructure disputes

Most construction and infrastructure disputes in China turn on a handful of recurring questions. Recognising them early helps parties preserve the right evidence and avoid arguments that will not succeed.

• Final account and valuation. Disagreement over the settlement price is the single most common claim. Where the parties cannot agree and the contract does not resolve the method, courts and tribunals frequently appoint a cost appraisal institution, whose report then carries considerable weight.
• Validity of the contract. Unlawful tendering, borrowed qualifications, unlawful subcontracting and so-called "yin-yang" contracts (a filed contract and a private side contract on different terms) can each lead to invalidity and a different basis of valuation.
• Delay and time extensions. Claims depend heavily on contemporaneous notices, site visas (signed instructions or confirmations) and meeting minutes. Formal time-bar clauses are generally enforced where clearly agreed, subject to arguments about waiver and conduct.
• Variations and site visas. Unsigned instructions are a recurring weakness for contractors; unsigned approvals are a recurring weakness for employers that later deny them.
• Quality and defects. Liability can survive completion acceptance; defects liability periods and retention arrangements are frequently disputed.
• Price fluctuation. Under the 2026 interpretation, labour and material price rises in fixed-price contracts are generally for the contractor's account unless the contract says otherwise or the change of circumstances doctrine applies.
• Bonds and guarantees. Calls on performance bonds and advance payment guarantees, and applications to restrain them, are often the first flashpoint.

Forums: courts, arbitration and dispute boards

A domestic construction contract between two Chinese entities, including foreign-invested enterprises, will usually be resolved in mainland China, either before the people's court where the project is located or before a Chinese arbitral institution. Disputes over construction project contracts are commonly allocated to the court where the project sits, so a contractor on a project in an inland province may face local litigation if there is no arbitration clause. The revised Arbitration Law, effective 1 March 2026, introduces the concept of the seat, recognises online proceedings and shortens the period to apply to set aside an award to three months.

Foreign-related contracts, such as an international EPC contract between a Chinese contractor and an overseas employer, can choose arbitration abroad or in the mainland. Institutions such as CIETAC and the Shenzhen Court of International Arbitration (SCIA) handle a large volume of construction cases, as do the HKIAC and SIAC for regional projects. Our pages on domestic arbitration in China and international arbitration explain how to choose between them.

Dispute boards, common under FIDIC forms, are increasingly used on internationally financed projects. Their decisions are usually binding unless and until revised by arbitration, and a failure to refer a dispute to the board, or to give a notice of dissatisfaction in time, can bar a later claim. Chinese contractors working abroad on FIDIC-based contracts should treat the dispute board timetable as strictly as any limitation period.

Infrastructure, PPP and cross-border projects

Large infrastructure disputes add further layers. Government-and-social-capital cooperation (PPP) projects and concession-style arrangements raise questions about whether a dispute is contractual and arbitrable, or administrative and therefore subject to administrative litigation. Claims arising from a government counterparty's unilateral changes, early termination or failure to pay availability fees may need to be analysed through both lenses. Our pages on PPP projects and administrative litigation and reconsideration discuss these boundaries.

For Chinese contractors abroad, the issues reverse. Projects under the Belt and Road framework are often built under FIDIC-style contracts governed by a host-state law or English law, financed by Chinese policy banks or export credit agencies, and subject to multilateral development bank procurement and integrity rules. Construction and infrastructure disputes on these projects can involve parallel claims against the employer, the host state under an investment treaty, and insurers, as well as the risk of debarment. See our pages on international projects and overseas EPC and Belt and Road.

The SPC has also built specialist capacity. The China International Commercial Court, with benches in Shenzhen and Xi'an, was established in 2018 to hear major international commercial cases and works with selected arbitral and mediation institutions as a "one-stop" platform. Since 1 January 2024, amendments to the Civil Procedure Law have expanded the jurisdiction of Chinese courts over foreign-related cases and clarified service and evidence-gathering abroad, which matters when a foreign employer or parent guarantor must be brought into proceedings.

Managing a construction claim step by step

Whether the client is an employer, contractor, lender or investor, the sequence below reflects how construction and infrastructure disputes tend to unfold in practice and where decisions have the greatest effect.

1. Diagnose the contract. Confirm which documents form the contract, whether a filed version differs from the signed one, whether tender rules applied, and whether any party lacked the right qualification. Validity determines the valuation basis.
2. Check the dispute clause and pre-conditions. Identify negotiation periods, engineer or dispute board steps, and notice requirements. Under the revised Arbitration Law the clause should still name an institution and, ideally, a seat.
3. Secure the position. Consider property preservation against bank accounts or receivables, and evaluate the priority right within its 18-month window. Preservation is ordered by courts and usually requires security.
4. Quantify early. Prepare a reasoned final account and claims for delay, variations and disruption. Anticipate the cost appraisal process and the questions an appraiser will ask.
5. Explore settlement. Mediation, including court-annexed and institutional mediation, resolves a large share of construction cases; see our page on mediation.
6. Plan enforcement. Map the counterparty's assets, any guarantees, and whether enforcement will be needed in Hong Kong or abroad.

Common mistakes include relying on unsigned site instructions, missing contractual notice deadlines, accepting a final audit without reserving rights, overlooking the 18-month priority window, and assuming that a foreign seat is available for a dispute between two Chinese subsidiaries. Each of these is avoidable with early attention.

How TRW & Co helps with construction and infrastructure disputes

TRW & Co's Shenzhen representative office helps foreign employers, contractors, investors and lenders, and Chinese contractors working abroad, to manage construction and infrastructure disputes from the first signs of trouble. We review contracts and project records against international practice, build claims strategy and quantum narratives, advise on English law, Hong Kong law and other non-PRC laws governing EPC, FIDIC and financing documents, and prepare for international arbitration and dispute board procedures. Where PRC legal advice, court filings, preservation applications or representation before mainland courts or tribunals are required, we coordinate closely with licensed PRC law firms and keep the whole team aligned on strategy and budget. To discuss a project, please contact us.