China Embraces Capitalism and the Prospect of Bankruptcy of State-Owned and Private Companies: Can Provisions for Individual Bankruptcy Be Far Behind?

As part of its economic transformation, China has adopted several of the core elements of capitalism, and in the process, has recognized the possibility of bankruptcy for both state-owned-enterprises and private companies. Part I of this paper outlines the main characteristics of the Chinese economy, especially focusing on export and import activities. Part II of the paper outlines in detail the procedures identified as part of the Chinese bankruptcy regulatory environment in order to understand the role that bankruptcy plays in the capitalist model in assuring that decision-making will be conducted on the basis of financial data and will not based on political considerations. At the same time, however, the paper underscores that the prospect of bankruptcy must also be viewed from the prism of internal Chinese politics and traditions relating to socialism. The Chinese government must take into account the prospect of social unrest that the possible bankruptcy of an enterprise would have on Chinese workers, perhaps further weakening the role of the Communist Party in Chinese society. Information is provided regarding bankruptcies that have taken place under the new law. Finally, the paper discusses the possibility of creating a system of bankruptcy for individuals in China which was not a part of the original legislative scheme.