Corporate Debt Crisis and Bankruptcy Law During the Transition: The Case of China

David D. Li and Shan Li

No 9, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: In the journey of post-socialist transition, many enterprises have accumulated large amount of debts and in deep financial distress. There axe many existing options that can be used to China's state owned enterprises (SOE's) axe facing a debt crisis. Over 80% of state enterprises have debt/asset ratios higher than 90% and a large proportion of state enterprises are running deficits and are defaulting debt services. The debt crisis not only causes distortions in investment behavior but also hampers the process of China's further enterprise and banking reforms. In this paper, we -not only analyze the causes of the debt crisis but also argue that resolving the debt crisis requires fundamental changes in enterprise control structure. Simple accounting transactions axe not enough. Based on this analysis, we propose a reorganization-oriented bankruptcy procedure, which combines elements of the Aghion-Hart-Moore (1992) procedure with special

Pages: pages
Date: 1995-12-01
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