Bankruptcy rules will improve SME efficiency in China

Significance

However, the sector is held back by inefficiency in resolving financial distress, which prevents effective restructuring, closure and, more broadly, access to bank finance. Simplified insolvency procedures for SMEs that aim to remedy this are being trialled across China.

Impacts

• Better resolution of SME insolvency is crucial for start-ups, which are the focus of recent policies for innovation-driven growth.
• A more flexible framework for resolving corporate failures would help China’s economy recover from shocks such as the COVID-19 pandemic.
• SME insolvencies and their resolution are policy challenges in many jurisdictions; solutions adopted in China may inform reforms elsewhere.