Pledge on bankruptcy law

PUBLISHED : Friday, 15 March, 1996, 12:00am
UPDATED : Friday, 15 March, 1996, 12:00am

The Chinese Government is determined to press ahead with bankruptcy reform this year and perfect a system of 'survival of the fittest' for industrial enterprises, State Economic and Trade Commission director Wang Zhongyu says.

Several delegates to this year's National People's Congress accused the government of stalling on the issue of bankruptcy and of failing to implement the long-awaited national bankruptcy law.

Mr Wang pledged that efforts in bankruptcy reform would be accelerated this year, but added it would be a gradual process.

'It is hard for me to give a specific date or say in what year we will have a completely perfect bankruptcy system,' he said.

'All I can say is that it is a gradual process and that this process is well under way.' Mr Wang said that during pilot experiments in 18 cities last year, 103 firms were declared bankrupt and a further 366 loss-making enterprises were merged with more profitable enterprises.

As a result, 1.4 million workers either had been reassigned work or had taken early retirement.

Mr Wang, whose commission primarily is responsible for reform of state-owned enterprises, said it was necessary to continue experimenting with bankruptcy procedures in pilot schemes before a national bankruptcy law could be introduced.

There were considerable variations among regions and sectors in the problems faced by enterprises and the government needed to gain as much experience as possible before drafting a law.

A key problem was how to establish an efficient and effective social security system to handle workers laid off as a result of bankruptcy, he said.

Responding to concerns raised by NPC deputies from the banking sector that the lack of effective legislation prevented banks collecting debts from enterprises which had declared bankruptcy, Mr Wang said the banks would have stood little chance of getting their money back even if enterprises were technically solvent.

'Those enterprises which declare bankruptcy are all those which have been in debt for a long time and are really in a hopeless position and cannot pay their debts anyway,' Mr Wang said.

'At least when they are bankrupt, the banks stand some chance of recovering their debts.' Mr Wang said the first priority in the redistribution of assets of bankrupt firms would be re-employment of redundant workers, who would be given the option of retirement, job training, or reassignment, usually to positions in the tertiary sector.

Bankers want guaranteed loans to be given first priority.

Mr Wang reiterated that one of the government's top priorities remained improving the efficiency and reducing the debt burden of China's state-owned enterprises.

He said it was unrealistic to think there would come a point when China would no longer have any loss-making enterprises.

'I don't think there is any country in the world that does not have loss-making enterprises, so our concern should be to minimise losses where possible,' he said.

'However, the number of loss-making enterprises in China is still quite high and we must increase our efforts to reduce those losses.' Mr Wang said losses for all industrial enterprises covered by the state budget, predominately state-owned enterprises, came to 40.9 billion yuan (about HK$37.95 billion) last year, an increase of 20.5 per cent over 1994.

Losses for all industrial enterprises with independent accounting systems increased by 34.4 per cent to 88.3 billion yuan, he said.

Although the government had identified the key areas of reform needed to improve the performance of industrial enterprises, Mr Wang said 'many deep-seated problems' still existed and a great deal more study and experimentation would be necessary before significant improvements could be made.