The country is in urgent need of a new bankruptcy law to ensure that failed non-state-owned enterprises can, where viable, continue to trade and also to better protect the interests of their creditors.
Wang Liming, a leading civil law professor with Renmin University of China, made the appeal to the first session of the 10th National People's Congress (NPC).
"The market economy is a competitive one in which enterprises must follow the rule that the fittest survives fierce competition," said Wang, who is also an NPC deputy.
He said a sound bankruptcy mechanism will encourage those enterprises concerned to try and survive and develop in the face of competition.
The Standing Committee of the Sixth NPC adopted a bankruptcy law for trial implementation in 1986, when China's economic reform was still in its infancy. The law only applies to state-owned enterprises.
However, a variety of businesses have emerged in the past two decades as reforms have deepened, including Chinese-foreign equity joint ventures, Chinese-foreign cooperative joint ventures and domestic or foreign solely invested corporations.
Currently, any bankruptcy concerning these newly emerged enterprises does not fall within the remit of any specific legal powers, Wang said.
He further complained that the current legislation lacks many basic and important rules for bankruptcy.
For example, it does not make any specific provision concerning the restructure of the firm concerned, a measure which could effectively help those large or medium-sized companies on the brink of bankruptcy to survive, said Wang.
He added that the incomplete stipulation concerning the liability of bankrupt firms allows debtors to abuse the existing bankruptcy mechanism by transferring their assets to avoid payment of their debts to the detriment of their creditors' interests.
"The nation should work out a new law with a sound bankruptcy mechanism especially since its accession to the World Trade Organization," Wang said.
(China Daily March 17, 2003)
