After a decade of work, China's new bankruptcy law finally came
before the Standing Committee of the 10th National People's
Congress (NPC), the country's top legislature, this week. The aim
of the new law is to put all enterprises on a level playing
field.
Also during their five-day session, which began Tuesday,
legislators will review reports on implementation of the land
management law, the government's preferential agricultural policies
and financial aid for farmers. They will hold a second round of
deliberations on the draft law on promoting agricultural
mechanization, as well as draft amendments to the Law on Contagious
Diseases Prevention and Control, and a draft law on online
signatures.
The legislators are also expected to ratify a consular agreement
between China and New Zealand, protocol on revising the Shanghai
Convention on Combating Terrorism, Separatism and Extremism signed
on June 15, 2001 in Shanghai, protocol on revising the Shanghai
Cooperation Organization (SCO) Charter, and protocol on revising
the agreement on the establishment of a regional anti-terrorism
agency, agreed to by SCO member countries earlier this month.
China's current Bankruptcy Law was promulgated in 1986 for trial
implementation when economic reform was still in its infancy.
Widely regarded as outdated, the law fails to give sufficient
protection to creditors and only touches upon state-owned
enterprises (SOEs).
Bankruptcy for non-SOEs is outlined in the Civil Procedure Law,
Company Law and Measures on Liquidation Procedures for Foreign
Investment Enterprises. Each contains some articles referring to
insolvency without much detail.
The aim of the new law is to put all enterprises, whether
state-owned, privately owned domestic or foreign, on the same
footing in terms of competition, said Jia Zhijie Tuesday in his
report to the Standing Committee.
Jia is the vice-director of the NPC's Financial and Economic
Committee, which has been drafting the new law since 1994.
Analysts say the new bill will integrate the country's
now-inconsistent bankruptcy legislation and equalize the nearly 8
million enterprises nationwide.
However, the draft gives an exception to around 2,000 SOEs
selected by the State Council, in line with previous administrative
closure measures.
These money-losing SOEs are the last group to go bankrupt with
government bailouts. That task will be finished in the next three
to five years, according to an official with the State-Owned Assets
Supervision and Administration Commission of the State
Council.
With the exception of the 2,000 SOEs, which are mainly military
and mining factories, 8 million companies across the country will
be required to follow a unified corporate bankruptcy law if they go
under.
More than 100,000 remaining SOEs will become equal competitors
in the market economy rather than being sheltered by the
government, said Li Shuguang, a drafter of the bill and vice
president of the Postgraduate School of the China University of
Politics and Law.
By April 2004, China had closed 3,377 insolvent SOEs through
administrative intervention, allocated 49.3 billion yuan (US$6
billion) as SOE bankruptcy subsidies and allowed state-owned banks
to write off a total of 223.8 billion yuan (US$27 billion) in bad
loans created by SOE bankruptcies.
(China Daily June 22, 2004)