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SCMP Reporter

Bankruptcies among mainland firms doubled in the first quarter of the year, despite official reluctance to let debt-laden enterprises go under.

  Official figures show that 558 companies, mostly state enterprises, filed for bankruptcy in the first quarter, nearly double the 290 cases recorded for the corresponding period last year.

 An expert warned that so many firms going to the wall so early in the year promised record bankruptcy levels for 1996.

  'The rise is significant because, traditionally, Chinese do not like to file for bankruptcy in first quarter of the year,' said bankruptcy expert Cao Siyuan .

  'The period is close to Lunar New Year, and bankruptcy is the kind of taboo people want to avoid.'   Beijing has encouraged the management of insolvent enterprises to change product lines, offer shares to workers or lease their firms to private investors to stay afloat. Bankruptcy is seen as a last option.

  However, as the country's economic reforms have seen market forces bite, the trend towards bankruptcy has soared.

  Last year a record 2,200 cases were filed in mainland courts, a 35 per cent increase on 1994, and this year the figure promises to be even higher.

  Economists believe that two-thirds of China's 100,000 state enterprises are in the red.

  In 1994, Beijing ordered its banking sector to increase its bad debt reserve fund by 0.2 per cent (of accumulated loans to enterprises) each year up to 1997.

  The additional funds generated by the move are designed to allow banks to write off huge bad debts from corporate bankruptcies, while the traditional reserve fund remains to cover bad debts if companies closed because of natural disasters or accidents.

  Official figures showed that for each 0.2 per cent increment, the banks would need to raise an additional 7.5 billion yuan (HK$6.8 billion), meaning they had set aside more than 20 billion yuan to cover bankruptcies.

  However, last year less than half of this fund was used, reflecting the strong resistance of banks to bankruptcy.

  Banking officials fear that giving the green light to insolvent firms could trigger mass bankruptcies that could jeopardise the whole banking sector.



Chinese firms facing record bankruptcies