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The mere notion of bankruptcy, liquidation or reorganisation of industrial enterprises was long considered anathema in the People's Republic of China (PRC or China), and directly contrary to the underlying logic of a centrally planned, state-owned economy and industrial system. The state's reluctance to allow bankruptcies was rooted in the ideology of the governing Communist Party but also reflects fiscal constraints with respect to payments to unemployed workers and the recapitalisation of state-owned commercial banks forced to write off loans as bad debts. However, such notions have gained wider acceptance concurrent with:

  • China's ongoing transformation to a socialist market economy;
  • reform of the 'state-owned enterprise' (SOE) system;
  • corporatisation and the gradual removal of the state from control and ownership of enterprises; and
  • the requirement that industrial enterprises survive as independent economic entities without government allocations of capital.


Reproduced with permission from Law Business Research Ltd. This article was first published in Getting The Deal Through – Insolvency & Restructuring 2002, in October 2001. For further information, please visit: