Bankruptcy Law of the People's Republic of China: Principle, Procedure & Practice

The Enterprise Bankruptcy Law of the People's Republic of China (For Trial Use) (the National Act), promulgated on December 2, 1986, is the first bankruptcy legislation applicable nationwide in the People's Republic of China (PRC or China). At the same time, some regional governments have also enacted regional bankruptcy laws with very limited geographic application. The National Act applies only to state-owned Chinese enterprises, while one regional bankruptcy regulation applies exclusively to foreign investment enterprises." The PRC thus has developed two parallel bankruptcy regimes. The introduction of a bankruptcy system in China represents a significant development in the economic relationship between enterprises and the state.

Foreign businessmen doing business in China will find it useful to have a basic understanding of how the bankruptcy system works, particularly its impact on the legal and economic status of their Chinese business partners. This article introduces the two parallel bankruptcy regimes and also presents a case study to illustrate the actual operation of bankruptcy law in China.