Chinese go for going broke. National parliament poised to approve bankruptcy law to punish debt-ridden companies
Factory heads in this gritty industrial town can run from Han Yaoxian - but they can't hide. The stout, middle-aged man in a navy blue Mao suit personifies China's most dreaded new economic experiment: bankruptcy.Skip to next paragraph
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``One might say that when factory directors see me they feel some mental pressure,'' chuckles Mr. Han, vice-director of Shenyang's Bankruptcy Affairs Office. ``That is, I am not a very nice image. You couldn't say I'm welcomed.''
Bankruptcy, long viewed by Communist Party ideologues as a bane exclusive to the capitalist world, is now hailed by China's pragmatic leadership as a necessary sanction for debt-ridden companies in an increasingly market-oriented economy.
Until recently, Chinese industry has operated like an appendage to the gigantic state bureaucracy. Under a Soviet-style economy, factories produced according to strict quotas. Many stagnated, propped up by massive government subsidies.
In a bid to raise efficiency and productivity, Chinese leaders in 1984 began to deemphasize central planning. In its place, Peking promoted regulations based on a mix of spending and budgetary policy and market forces - euphemistically described as ``socialism with Chinese characteristics.''
Yet as these reforms spurred greater competition, they aggravated the losses of unprofitable, state-coddled firms. For example, more than 13 percent of China's 38,700 key state-owned industrial firms posted losses in 1987, according to official statistics. State enterprises consumed subsidies totaling nearly 15 percent of last year's government spending.
To lighten this budgetary burden, Chinese leaders drafted a national bankruptcy law. The law provides protection from creditors, preferential tax treatment, and low-interest loans to financially strapped companies for up to two years. After that, if they fail to recover, they will be declared bankrupt.
The law will come into force automatically this summer if, as expected, China's parliament passes related legislation at a session opening Friday.
Chinese officials stress that the law is intended to goad the nation's thousands of indebted companies toward recovery rather than see them liquidated. Widespread factory closings, they reason, could spark unrest among China's 132 million industrial workers.
Yet, deprived of state handouts, an enterprise's survival will depend on how aggressively its management promotes new worker-incentive plans and tailors production to an increasingly competitive, changing domestic market.
``In the midst of competition, the survival of the fittest is inevitable,'' reads the opening clause of bankruptcy regulations.
The law is already undergoing trial in Shenyang, the capital of China's northeastern Liaoning Province. A coal-streaked industrial city with a history of blue-collar activism, Shenyang is an appropriate setting for such a Darwinian drama. The city captured nationwide attention when it initiated China's first post-revolutionary bankruptcy experiments in 1985.
Stunning workers and management, Han's Bankruptcy Affairs Office slapped warnings on three indebted plants. ``Psychologically, the workers proved rather frail when confronted with the idea. Some are strongly averse to it,'' said Han, a former engineer who helped draft Shenyang's bankruptcy regulations.
Two of the firms recovered last year. But the third, the Shenyang tractor-parts factory, became China's first urban enterprise to go bankrupt in nearly four decades of communist rule.