China to Place Financial Institution Bankruptcy Laws

Specific laws will be revised in China, including the Enterprise Bankruptcy Law in its five-year legislative programme. This report was signed off by Li Zhanshu, chairman of the standing committee of the National People’s Congress, or parliament.

For the first time, China will place financial institution bankruptcy laws on its legislative agenda. This was according to a report by the top legislative body released on Monday.

In China, technically insolvent firms were prevented from exiting their market effectively. This was due to the absence of a legal bankruptcy framework for their financial institutions. 

NPC delegates have submitted 506 proposals this year. Among them, 11 have mentioned the revision of the Enterprise Bankruptcy Law.

That will allow specific individual bankruptcy and financial institution bankruptcy laws, according to the report.

Guo Xinming,  head of the Nanjing branch of the People’s Bank of China (PBOC) stressed on the urgency of the revision. Xinming is also an NPC delegate.

In a written reply to questions, he said “bad apples” will keep hindering market efficiency. That is without such laws to deal with troubled banks or other financial institutions.

He noted that some institutions may have exited from the market on paper. But, in fact, it is difficult for them to write off debts in a timely and effective way. This creates hidden dangers that will ‘ferment’ and become future risk events,” he added.

The PBC and its financial regulators have taken over a number of a number of brokerages, trusts and lenders. This was due to poor governance and the credit risks they contained.

In 2019, during a high-level takeover, Chinese authorities seized control of Baoshang Bank. The troubled regional lender was then allowed to declare bankruptcy a year later.

Guo further said they have accumulated valuable experience in risk disposal and formed some good practices. However, there is still a gap compared with the requirements of modern and orderly disposal mechanisms, he added.

The NPC Standing Committee has not given a definite timeline as to when individual bankruptcy laws would be added to the legislative agenda.

On China’s  Economic Growth Target for its New 5-year Plan

Meanwhile, the country’s decision not to set an economic growth target for its new five-year plan will give policymakers more room. That is to account for uncertainties and respond to changes, according to a senior state planner official on Monday.

Its  previous five-year plan which was issued in 2016 included average annual growth targets. This time, they’re not included in the 2021-2025 economic plan which was delivered to their nation’s legislature on Friday.