The Future Direction of China's Cross‐border Insolvency Laws,Related Issues and Potential Problems

The enactment of bankruptcy laws by the People's Republic of China (PRC or China) in 2006 was a necessary step in the development of its economy. This law represented a significant modernisation of the insolvency framework, supporting the transforming economy, but it was also a law of political expediency, for the enhancement of external relations. One aspect of the enhancement of external relations was the provision of cross‐border insolvency rules. However, this complex area of law was addressed in only one article, which was only a starting point, leaving many details unaddressed, and further reforms are required. In particular, it is desirable that the law provides a greater level of predictability as to the likely outcomes of cross‐border insolvencies, to encourage inward trade and investment, as well as encourage external trade. Both inbound and outbound business dealings are important to China's continued economic development. It is clear also, however, that insolvency law and practice is still a developing area for China. The establishment of a modern and unified system of insolvency laws was a big step for China, representing a sacrifice of tight controls on insolvencies, but the impact of this law in practice is only recently developing, with a loosening of state controls, after a very slow start. 1 The establishment of a cross‐border insolvency framework represents a further challenge; one that is likely to beset with considerable difficulties, as any further development of this law would potentially entail some further loss of control over proceedings, not least in outbound cases, and resistance may be anticipated. In keeping with China's historical approach to lawmaking in the area of bankruptcy law, it is likely that the cross‐border insolvency framework will develop gradually and with caution. This article assesses the way forward in respect of cross‐border insolvency laws, contending that an incremental approach over a period of years, in three broad stages, is required, with more developed and country‐specific approaches providing a link, or interim stage, between the clarification of the Article 5 and the formal adoption of the United Nations Commission on International Trade Law Model Law on Cross‐Border Insolvency Proceedings 1997 (Model Law) in China. Copyright © 2018 INSOL International and John Wiley & Sons, Ltd.