China Lets a Factory Go Bankrupt

A new sign of economic reform has emerged in China: bankruptcy.

The official newspaper Workers Daily this week reported the first factory bankruptcy since the 1949 Communist revolution. Diplomats described it as a victory for reformists over Communist Party hard-liners.

The newspaper said an instruments factory in the northeastern city of Shenyang had succumbed to bad management, heavy losses and big debts. It said the plant was warned last August to put its house in order but had failed to do so and was forced to declare bankruptcy.

“The factory was given a ‘yellow warning card’ last year, but it ended up with the ‘red card’ of bankruptcy,” the paper said, referring to the cards shown to misbehaving soccer players by referees to indicate warning and then dismissal.

A Western diplomat said the news was a significant step in China’s economic reforms, indicating that a national bankruptcy law will be passed despite opposition from hard-liners who regard bankruptcy as inhumane and dangerously capitalist.

In a communist system, state-owned and -operated enterprises ordinarily are allowed to continue operating, and draining public funds, even though they may be inefficient, unprofitable and unnecessary.

Shenyang is the first city in China to pass bankruptcy regulations, and the results are being closely watched nationwide.

The regulations are in line with economic reforms introduced since 1979 by Chinese leader Deng Xiaoping aimed at making firms responsible for their own profits and losses.

A parliamentary committee last month considered the first national bankruptcy law aimed at dealing with a number of state firms that had been losing money for several years, the press has reported.

The Workers Daily said the Shenyang factory sent an emergency notice to its creditors last Saturday telling them to register their claims before July 30. It did not say what would happen to the factory’s workers. The official press quoted the vice president of Shenyang’s Trade Union Council as saying last month that workers from bankrupt firms would be guaranteed jobs elsewhere.

The Western diplomat said the liquidation of the Shenyang firm was a bold enough step for a Communist country without the extra shock of throwing people out of work.

“China does not have a social security net to look after fired workers,” he said.

First came the gold card, then the platinum card and now those who want exclusive plastic can apply for a Great Wall credit card.

But they’ll have to go to China to get it.

The Bank of China announced that it will issue Great Wall cards to Chinese and foreign businesses as well as individuals. The cards, issued by the Peking branch of the bank, will be honored at the Diaoyutai state guest house and 35 other businesses, according to Chinese press reports.

Charges on the card will represent foreign exchange certificates, which can be used to purchase imported items. The cards will not be available to most Chinese since they do not have access to the certificates.

The card shows two different views of the famous 1,500-mile Great Wall, built in China about 700 years ago and designed to ward off invaders.

The bank did not announce why it was issuing the cards or detail how many cards it expects to issue. Most major foreign credit cards--such as the gold and platinum cards issued by American Express--can be used at the places the new card is accepted.

The official English language Peking Daily said the card will be more convenient for foreign residents in China to use than the more cumbersome foreign exchange certificates.