Why stigma holds back China's bankruptcy law

More than two decades after the mainland's first bankruptcy law was passed, Cao Siyuan, who is credited with being the architect of the law, said Beijing was lagging in actively enforcing the provisions, and that their scope needed to be expanded.

A trial bankruptcy law was approved in December 1986 after a bumpy year-long legislative process and came into effect two years later.

In 2007, the government passed a new and more comprehensive bankruptcy law, introducing provisions for restructuring plans and widening the application of the law from state-owned enterprises to all entities with a legal-person status.

While China now has one of the world's best-written bankruptcy laws on its statute books, its provisions are yet to be robustly tested.

In an interview with the South China Morning Post, Cao attributed the slow progress mainly to what he called old mindsets originating from the era of a planned economy, and which remain deep-rooted in society.

Local governments and individuals in China are still excluded from the coverage of the bankruptcy law, while the number of corporates filing for bankruptcy remains low, even though hundreds of thousands of unprofitable enterprises exit the market every year, Cao said.