In terms of bankruptcy law in books, China’s 2007 Enterprise Bankruptcy Law has already transplanted all necessary modern bankruptcy institutions, including the appointment of administrator and reorganization, and adopted completely the Western theory of bankruptcy. Due to the absence of a well developed welfare system and the necessity to avoid the social and economic instability, under the influence of the traditional legal mentality, China’s court and government totally control the whole process of the implementation of bankruptcy law, aimed at protecting overwhelmingly with priority the interest of government or state over that of the private creditors. For the same reason, sometimes, the world-wide recognized rule «for the same type of bankruptcy credits, the same treatment» is ignored in law practice. By enacting from time to time the numerous judicial interpretations and administrative regulations, China’s courts and government modify pragmatically the law in books and create some Chinese-style bankruptcy rules and institutions, such as Policy Bankruptcy. The Chinese bankruptcy law in action often changes from case to case and from time to time without sufficient certainty. China is still far from the real transplant of a real market-economyoriented bankruptcy law.

Section I - Introduction  1. Brief history Being defeated disastrously by the Western Powers, at the beginning of the 20th century the Qing Dynasty (1644-1912) decided to modernize its legal order and in 1906 enacted the first Chinese bankruptcy code with its 69 articles. Under strong influence of Japanese law, the code was applied not only to businessmen but also to all civil subjects. It was abolished in 1908, two years later after it came into effects. On the basis of comparative study on the foreign legislative experiences, in 1934, the Chinese Nationalist government drafted and promulgated a new bankruptcy code, which was put to end by Communist government upon the foundation of People’s Republic of China (PRC) in 1949, but is still valid in Taiwan today. After the political victory over the Nationalist government, the PRC’s communist regime set up ex novo a socialist legislation on the model of Soviet Union’s law, aimed at establishing and developing a planned economy. As the bankruptcy is a typical capitalist legal institution[1] based on the principal of private autonomy and free competition economy, no bankruptcy legislation is seemingly necessary in socialist country because any legal rule in planned economy works only as the tool of realization of the state plans and no enterprise is qualified as an independent legal subject with freedom of decision and self assumption of its own liability. As a result, there was no bankruptcy law in China from 1949 to 1986. After its opening-up policy in 1979, China began its economic and legislative reform on enterprise in order to provide more autonomy to State-Own Enterprises (SOEs), which is the backbone of the China’s centrally planned economy, and make it operate with more efficiency[2]. In this context, upon the suggestion of some political leaders and given the necessity of modernization of China’s SOEs, China’s National People’s Congressapproved Enterprise Bankruptcy Law on December 2, 1986. This law entered into effect on November 1, 1988 and was applied only to SOEs and for trial implementation due to two main reasons[3]: first, since no social welfare system was set up in that period, a “real and effective” implementation of enterprise bankruptcy would cause a high unemployment and serious social instability. The high unemployment is totally against the socialism; second, there were neither company law nor labour law, so substantively, no SOE was an independent and profitable legal subject and it was unfair to request its managers and workers to bear the responsibility of the bankruptcy. With the promulgation of the 1986 Enterprise Bankruptcy Law, the Chinese government did not intend really to close the SOEs, but to set the SOEs, in particular their managers, an alarm of the possibility of being bankrupt[4]. China extended the bankruptcy regime to non-SOEs by setting forth ad hoc the applicable bankruptcy procedure for [continua..]