The Reasons of the Emerge of Personal Bankruptcy Regulation in China

The Reasons of the Emerge of Personal Bankruptcy Regulation in China

By Olivia Dai

Among the world’s top ten economies (2018), only China mainland, Brazil, and China’s Macao region used to not have personal bankruptcy systems.[1] But Shenzhen, a Special Economic Zone of China mainland first provides legal rescue for honest but unfortunate individual bankrupts by enacting the Personal Bankruptcy Regulation of Shenzhen Special Economic Zone (hereinafter “Regulation”) on August 31, 2020[2].

Personal bankruptcy law definitely will be the end in China[3], but why did China decide to gradually establish Personal Bankruptcy legal system at this time? The debate on whether a personal bankruptcy system could be established in China reached its two peaks before the formulation and implementation of the Enterprise Bankruptcy Law in the 1990s and after the formulation and implementation of the Enterprise Bankruptcy Law in 2006.[4] Although scholarship consistently believes it is necessary to enact a Personal Bankruptcy Law in China, the efforts to enact the Personal Bankruptcy Law or Regulation in China failed in both times.[5] But in February 2019, the Supreme Court of the People’s Republic of China mentioned in its Fifth Five-Year Reform Outline of People’s Courts (2019-2023) that it is necessary to study and promote the establishment of a personal bankruptcy system, and also requires the introduction of relevant supporting policies to solve the problem of personal enforcement difficulties.[6]

In 2006, the Chinese government gave official reasons to explain why 2006 was not the right time to enact a Personal Bankruptcy Law.[7] First, Chinese people do not have the habit of excessive consumption, and the savings rate of residents is generally high, which is not suitable for establishing a personal bankruptcy system in China.[8] second, the information is not transparent in China, and there is no national property registration system and personal integrity system, which makes it difficult to implement the personal bankruptcy system.[9] Third, the current financial system in China is not perfect, and the network operation has not yet been established, so it is difficult to implement the monitoring of personal bankruptcy.[10]

The three reasons do not stand in current China, which is why China started to establish its Personal Bankruptcy legal system by enacting Regulation. First, First, the personal saving rate in China has decreased to 5.95% from 2008 to 2016[11], and the consumer credit market is prosperous and competitive[12]. The underlying reason is that the increased competition in consumer lending naturally leads to enhanced affordability of consumer credit and ultimately produces greater access to consumer credit.[13] In turn, this wider access may generate increased financial vulnerability as individuals undertake excessive debt.[14] According to Consumer Finance Industry Report, the consumption expenditure contributed 78.5% to GDP growth in the first half of 2018. [15] The report predicts that the scale of consumer finance credit will reach more than 20 trillion in China by 2020.[16]

Second, although a national social credit record system and a national property registration system have not been established, China makes a huge improvement in these two aspects, especially in relatively developed cities and regions.[17] Since 2006, the local social credit system has developed quickly in first-tier cities, like Beijing, Shanghai, and Shenzhen, although a national credit system has not been established.[18] In addition, China passed Administrative Regulations on the Credit Information Collection Sector (“ Credit Regulation”) (《征信机构 管理办法》) in 2013, which is the first regulation governing credit reporting industry in China.[19] The enacting of the Credit Regulation is milestone progress, and the number of inquiries of credit information has reached 2 billion times, referencing to statistics of the central bank’s credit information center. [20]

Third, in 2017, the People’s Bank of China organized the commercial banks to establish a credit information system for enterprises and individuals, which has established credit files for more than 1.3 million enterprises and nearly 600 million natural persons across the country.[21]

Besides the three changes, China also wants to gradually enact a Personal Bankruptcy Legal System to encourage entrepreneurship[22]

The decreased personal saving rate, gradually establishing and perfecting social credit record system and property registration system, the more cooperation among financial institutes, and the need to encourage entrepreneurship are four main reasons why China start to establish its Personal Bankruptcy Legal System by enacting Regulation at this time.


[1] Jason Kilborn, The Rise and Fall of Fear of Abuse in Consumer Bankruptcy: Most Recent Comparative Evidence from Europe and Beyond, 96 Tex. L. Rev., 1327, 1329 (2018).

[2] Shenzhen Jing Ji Te Qv Ge Ren Po Chan Tiao Li (深圳经济特区个人破产条) [Regulation of Shenzhen Special Economic Zone on Individual Bankruptcy] (promulgated by Standing Comm. People’s Cong. Shenzhen Municipality, Aug. 26, 2020, effective Mar. 1, 2021), CLI.10.1627415(EN) (Lawinfochina).

[3] Kent Anderson, The Explosive Global Growth of Personal Insolvency and the Concomitant Cirth of the Study of Comparative Consumer Bankruptcy, 42 Osgoode HALL L.J. 661 (2004) (Personal bankruptcy law is an inevitable product of the continuous development of commodity economy); see also Aqilah Nadiah MD SAHIQ et al., Towards Achieving Long-Term Debt Sustainability: A Systematic Review of the Key Determinants of Personal Bankruptcy, 12 Turkish J. Computer & Mathematics Educ., 1305, 1307 (2021).

[4] Wanyi Zhao (赵万一)& Da Gao (高达), The Design of China’s Personal Bankruptcy System (论我国个人破产制度的构建), 3 Stud. L. & Bus. ( 法商研究), 81, 81-89 (2014).


[6] Weidong Wang (王卫东) & Changzhong Liu (刘昌忠), The Judicial Practice and System Design of Personal Bankruptcy System in China (我国个人破产的司法实践及其制度建构), 4 Shandong J. Training J. (山东法官培训学院学报), 82, 82-83 (2020).

[7] Youlu Yi (易有禄) & Wenbo Wan (万文博), The Legal and Economic Analysis of Personal Bankruptcy (个人破产的法经济学分析),5 J. Jiangxi U. Fin. & Econ. (江西财经大学学报),127, 127(2019).

[8] Id.

[9] Id.

[10] Id.

[11] Tianyu Yang (杨天宇), Why China’s Personal Saving Rate has dropped since 2008 (破解2008年以来中国国民储蓄率下降之谜),11 Economist (经济学家) 14, 14 (2019) (explaining that the personal saving rate in China dropped from 51.91% in 2008 to 45.96% in 2016); see also Rafael Efrat, Global Trends in Personal Bankruptcy, 76 AM. BANKR. L.J. 81, 104 (2002) (stating that the bankruptcy filing rate is relevant to the bankruptcy filing rate).

[12]See Shan Yuxiao & Tang Ziyi, Shenzhen court issues landmark ruling on personal bankruptcy, Nikkei Asia (July 21, 2021), (“The explosion in consumer credit and the growing number of delinquent borrowers is also pushing the government to speed up the development of a personal bankruptcy system. Government data shows that household leverage reached 62.2% of GDP at the end of 2020, up from 44.7% at the end of 2016.”).

[13] Rafael Efrat, supra note 11, at 92.

[14] Id.

[15] Sina Finance & Economy (新浪财经), Report: The scale of consumer finance credit will reach more than 20 trillion by 2020 (报告:消费金融信贷规模到2020年将达20万亿级以上),

[16] Id.

[17] Yin Zhang(张欣), Research on the Establishing Personal Bankruptcy System in China (我国个人破产制度的构建研究), 6 L. & Soc’y (法制与社会), 34, 35 (2021).

[18] See Xianbin Yang (杨显滨) & Fengrun Chen (陈风润), Establishing a Chinese-style Personal Bankruptcy System (个人破产制度的中国式建构), 4 Nanjing Social Sci. (南京社会科学) 98, 101 (2017).


[20] Yin Zhang(张欣), supra note 17, at 35.

[21] Huiqing Dong (董惠清) & Wenjing Chen (陈文静), The Necessity and Feasibility of China’s Personal Bankruptcy System Construction under the Background of Innovation and Entrepreneurship (创新创业背景下中国个人破产制度构建的必要性和可行性), 3 L. & Society (法制与社会) 42, 48 (2018).

[22] Id.; See also Seung-Hyun Lee et al, Bankruptcy Law and Entrepreneurship Development: A Real Options Perspective, 32 Acad. Mgmt. Rev. 257, 257–272 (2007).