1、Bankruptcy in ChinaSilent bustsOct 9th 2008 | HONG KONGFrom The Economist print edition (page 76, Business section)More Chinese businesses are collapsingthough you would never know itOFFICIALLY, only a few thousand companies will declare bankruptcy this year in China. Unofficially, local manufacturi
2、ng groups believe many more than that will go out of business in the southern province of Guangdong alone. And the underlying causesfalling demand for exports, higher material costs, stricter labour lawsare hardly unique to that province. But in contrast to Europe and America, where business failure
3、s are meticulously tracked, the only trace left by most of these firms will be rusting locks on their old front gates.This is because Chinese business owners who wish to shut down their companies have three options: to reach informal agreements with employees, trading partners and the government; to
4、 file under the auspices of a court; or to walk away. Each has its drawbacks.A Shenzhen manufacturer who recently tried to close by informal agreement describes the process as almost impossible. He had to negotiate separately with over a dozen government agencies, including tax, labour and even the
5、fire department; each had demands that changed by the day. Then there were skittish suppliers, one of whom blockaded his firms entrance. “Everyone just wanted more money,” he says. “That is why most people just shut down overnight.” The only thing everyone agreed on was the need to avoid the local c
6、ourts.Last year a new bankruptcy law came into effect, but it is incomplete and poorly understood. Even firms that might recover by restructuring under court protection are reluctant to use it, says Helena Huang of Kirkland & Ellis, a law firm. In the past, bosses often preferred to run a business d
7、own to its last yuan before acknowledging problems, at which point there was little to reorganise. Even under the new law, it is unclear whether lenders who step in after a bankruptcy have priority over old claims, undermining any incentive for a would-be backer to give a firm a second chance.As a r
8、esult, any reorganisations that do take place often happen informally. One local municipal government, Ms Huang says, recently bailed out a big local firm because it feared that a collapse would harm local jobs and its own reputationand this is hardly uncommon. There are quiet bail-outs, she adds, e
9、ven among publicly listed companies.More than 30 companies on the national stockmarkets have recently failed, says Alan Tang of Grant Thornton, a consultancy. But in many cases control has been acquired by other firms to engineer a “backdoor listing”, without the lobbying and delays common in China.
10、 Evidently some Chinese entrepreneurs continue to believe that a listed firms ability to raise public capital is worth havingif not now, then one day.Reader comments on this article are listed below. Review our comments policy.Comments Policy closeYou are solely responsible for all content you post
11、to the site. Libel, copyright and trade mark infringement, links to commercial websites, products, or sales materials, and offensive or threatening language are not permitted and may be removed based on our comments policy (for more information, please review our terms and conditions).Your pen name
12、will appear alongside any comments that you post.skywalker-rick wrote:October 14, 2008 17:55 Probably 90% of Chinese businesses are small shops that have never registered. The new reforms are putting a lot of burden on the medium to small businesses, which have pretty much been run like described be
13、low “they build it, they run it“. The trouble is that they dont contribute much taxes, and they dont give any benefits. The new reforms are doing a lot to make them pay - to which a lot of businesses either simply cannot stand the burden, or closes down and then move to somewhere else in China to st
14、art as a new business to escape some of the requirements. The days of mom and pop shop might not be over because the new reforms do not affect them, but the factories and other businesses are trying to cope with the new reforms. Of course, there are other reasons causing the Chinese businesses to cl
15、ose down, but this one should not be overlooked, since the article talks quite a bit about labor laws and bankruptcy laws. In the 80s and early 90s there were the “suitcase businessman“, who pays no taxes and owns no assets other than a suitcase. In the 90s and 00s the labor laws have already forced
16、 a lot of burden on taxes and income for the businesses. What one cannot overlook is that the free wheeling and dealing entrepreneurship in China might be severely threaten now.Franny the Cat wrote:October 13, 2008 01:23 The last lesson in capitalism is always how to fail. I dont expect the Chinese
17、to have a working system of bankruptcy for at least 30 years. But as Canadianchinaman notes, the current system of “run it to the ground, then run“ seems to be the most efficient system in the meantime. Er, unless youre an employee. I guess the real “last lesson“ of capitalism is respecting labor ri
18、ghts!Dave W. wrote:October 13, 2008 00:14 what is a “company“ in the PRC? here in the West, the word “company“ slips out of the mouth so frequently easily, and so we forget to ask: “what, in exact legal terms, is a company?“ given chinas lack of a legal system with enforceable laws, comparing a chin
19、ese “company“ with a usa/euro/japanese company is false and misleading.Broderben wrote:October 12, 2008 21:04 To paraphrase another comment of mine, this is why I cannot believe China will become the next superpower. If the official numbers do not even attempt to match reality than you cannot claim
20、to understand the state of your nation. This story reminds me of the pathetic “Great Leap Forward“, I simply hope it doesnt have the same ultimate consequences for the Chinese who have to experience it.SaurabhG wrote:October 12, 2008 17:01 China has a different style of existence for long, and the r
21、eason why their factories are going down is that their revenue model is dependent on one revenue stream (for many industries) - Exports. Its not the case of failure of the factories but a case of Communist ideology failure. Chinese financial regulatory body was required to monitor the dependency of
22、the economy on one parameter and needed to variate that. In future, we can expect more economies to go down as they assumed Chinese economy as robust and ever shining.The problem with giant economies who create/produce goods in volumes is that they require buyers in volumes too. This case would have
23、 been the same if US would have doubled the import taxes (duties). Its the country ideology that determines the fate of its people.canadianchinaman wrote:October 09, 2008 17:20 Many of Chinas factories were built practically overnight. They can just as easily fall apart overnight. This is of course
24、not good business practice and causes contractual and financial pain to all parties concerned. But on the practical side it spreads the pain around to a bearable and survivable level. The result is the demise of only a minority of the counter-parties. There is no practical recourse from the courts t
25、hus it is not worthwhile to incur legal expenses, accounting expenses or the time to find satisfaction. You take your loss and move on. The physical assets will be seized quickly enough, sold and just as quickly redeployed by their new owners in productive work. All old hands in China are aware this is the kind of business environment they work in. It will be the foolish businessman who bets his firm on one particular supplier, on a particular customer or a single market where the demise of one will result in his own demise. It is business risk management in the best Darwinian tradition.
