China to put financial institution bankruptcy laws on legislative agenda

BEIJING (Reuters) – China will put financial institution bankruptcy laws on its legislative agenda for the first time, according to a report by the top legislature released on Monday.

The lack of a legal framework for bankruptcy for Chinese financial institutions has prevented technically insolvent companies from effectively exiting the market.

A series of laws will be revised, including the corporate bankruptcy law in the five-year legislative program, said the report, signed by Li Zhanshu, chairman of the standing committee of the National People’s Congress, or parliament.

Of the 506 proposals submitted by AFN delegates this year, 11 mentioned revising the corporate bankruptcy law to allow specific laws on individual bankruptcies and financial institutions, according to the report.

The review is urgently needed, said Guo Xinming, head of the Nanjing branch of the People’s Bank of China (PBOC) and also a delegate of the AFN.

Without such laws to deal with troubled banks or other financial institutions, “bad apples” will continue to hamper market efficiency, Guo said in a written response to Reuters questions.

“Some institutions may have exited the market on paper, but in fact it is difficult for them to write off debts in a timely and effective manner, creating hidden dangers that will ‘ferment’ and become future risk events.” , did he declare. .

In recent years, the Chinese central bank along with its financial regulators have taken over a number of financial institutions, including brokerage houses, trusts and lenders due to poor governance and the credit risks they contained. .

In a high-level takeover, authorities took control of ailing regional lender Baoshang Bank in 2019 and allowed it to declare bankruptcy a year later.

“We have accumulated valuable experience in eliminating risks and formed some good practices, but there is still a deviation from the requirements of modern and orderly elimination mechanisms,” Guo said.

The AFN standing committee also said that individual bankruptcy laws would be added to the legislative agenda, without giving a specific timeline.

Reporting by Cheng Leng, Kevin Huang and Ryan Woo; edited by Mark Heinrich

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