Legal basis: Civil Code of People's Republic of China (PRC).
Article 386 Where the debtor fails to perform the due debt or the parties agree to realize the security interest, the holder of the security interest shall enjoy the priority of compensation for the secured property according to law, except as otherwise provided by law.
Article 387 Where a creditor needs security for the realization of secured creditor's rights in civil activities such as lending, buying and selling, it may establish a security interest in accordance with the provisions of this Law and other laws. If a third party provides a guarantee for the debtor to the creditor, it may require the debtor to provide a counter-guarantee. The provisions of this law and other laws shall apply to counter-guarantee.
Article 388 To establish a security interest, a security contract shall be concluded in accordance with the provisions of this Law and other laws. Guarantee contracts include mortgage contracts, pledge contracts and other contracts with guarantee functions. The guarantee contract is a subsidiary contract of the principal creditor's rights and debts contract. If the principal creditor's rights and debts contract is invalid, the guarantee contract is invalid, except as otherwise provided by law.