Chinese officials face uphill battle to pass bankruptcy law

The struggle to approve a bankruptcy law for China has come to a stalemate, pointing to the difficulty leaders face in challenging certain tenets of socialism. Under Premier Zhao Ziyang, the government's highest executive body, the State Council, has twice submitted a proposal on bankruptcy to the Standing Committee of the National People's Congress (China's national assembly).

Both proposals have been returned for revision.

The lack of approval was a major setback and surprised officials who expected the Standing Committee to be compliant on important economic policies.

``This shows that the National People's Congress is no longer merely a rubber-stamp legislature,'' said one Chinese observer.

On the other hand, it could indicate lack of a consensus within the leadership about the advisability of such a provision. Otherwise it would surely have passed, a Western diplomat said.

Another diplomat said he thought the State Council would force the bankruptcy provision through soon, since it could not permit such an important part of its reform package to be rebuffed.

At a recent meeting, the Standing Committee failed to reach a decision, despite spite several attempts to compromise by severely limiting the scope of the proposal. The official New China News Agency reported that ``because of major differing opinions,'' the proposal was set aside for further study.

The bankruptcy law has been controversial, since it challenges a major assumption of socialism -- that workers can rest assured that their jobs are guaranteed.

In a widely reported experiment, the country's first official bankruptcy since 1949 took place Aug. 3 in Shenyang. An explosion-proof instrument factory went out of business, and those of its 72 employees who were unable to find other jobs were given temporary pensions paid by the municipal government. Creditors divided the company's assets.

Press reports said workers in Shenyang were shocked by the action.

The experiment continues, and six more factories in the cities of Shenyang, Taiyuan, Wuhan, and Chungking (Chongqing) have been given notice. Since at least 20 percent of China's state-run enterprises are losing money, the experiment has been highly selective.

In China, an employee's work unit is the primary source of state benefits: a guaranteed salary, housing, health care, food coupons, pensions, and often education. Critics say that some alternative means of providing benefits must be arranged before the country can consider putting enterprises out of business.

There is also the complication of determining financial responsibility for companies that operate under state controls, dictating prices of inputs and outputs that do not reflect their true economic value.

Nevertheless, the idea of bankruptcy for inefficient and unprofitable enterprises has been supported by members of the State Council and by some leading Chinese economists.

The New China News Agency quotes Sheng Shuren, vice-minister of the State Economic Commission as saying a bankruptcy law is ``necessary and possible.''

``Already, we have a considerable number of enterprises suffering losses. Without a bankruptcy law, they will have no sense of crisis,'' he said.

Reformers say this ``sense of crisis'' is what is needed to break up the complacency of managers and workers about the widespread inefficiencies and mismanagement in thousands of enterprises. Revitalizing Chinese industry is a primary task of the reform efforts, and numerous exhortations from the Communist Party have produced disappointing results.