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Standing Committee Mulls New Bankruptcy Law
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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 Widely regarded as outdated, the law fails to give sufficient protection to creditors and only touches upon state-owned enterprises (SOEs).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)

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