China exempts state firms from bankruptcy law

Shanghai, September 25:

China plans to give over 2,000 weak state companies at least 18 extra months to comply with a new bankruptcy law aimed at ending government coddling of loss-making firms, the Financial Times reported on Monday.

The law, which will come into effect in June next year, will not apply to 2,116 state-owned enterprises until the end of 2008 due to concerns about the potential social impact if the companies go bankrupt, the Financial Times said.

The law, passed in August after more than a decade of debate, is aimed at weeding out poor performers and shoring up creditor and investor rights in the event of bankruptcy.

But according to the director of the Bankruptcy Law and Restructuring Research center at Beijings China University of Politics and Law, Li Shuguang, social priorities still need to be taken into account.

For some companies, employee health and wage claims will still take precedence over creditors claims, an arrangement that has so far slowed restructuring in some sectors, according to Li, one of the authors of the law.

Claims by state employees range from hundreds to millions of yuan and Li said resolving those wage claims by 2008 would be difficult.