Fitch views Chinese bankruptcy reforms positively

Fitch Ratings said it views positively the reforms proposed under China's new enterprise bankruptcy law to be implemented next year, which are in the form of Western-style provisions and practices which give creditors more direct involvement and power.

However, the agency said it expects that it will be years before the proposed new bankruptcy law is widely used and consistently applied, given the time and detailed rules and procedures required to ensure the successful implementation of any new bankruptcy law. Additionally, an effective judicial infrastructure can only be established over time as the judges accumulate experience and expertise in handling bankruptcies and reorganizations.

"Whilst Fitch welcomes the potential improvement in creditor rights through the enactment of the new bankruptcy law, China currently lacks an established track record for security enforceability and transparency of the legal system," Siew Huey Loong, director in Fitch's Asia-Pacific corporate ratings group, said in an agency report.

"Until a track record is established and the new bankruptcy law is applied consistently and effectively, Fitch can therefore give only limited weighting to this factor when assigning instrument ratings."

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