Drafting Bankruptcy Laws in Socialist Market Economies: Recent Developments in China and Vietnam

Both the People’s Republic of China (the “PRC” or “China”) and the Socialist Republic of Vietnam (“Vietnam”) are making the transition from a centrally planned economy to a market-based economy. An effective bankruptcy law is an integral part of the institutional framework necessary for this transition. China enacted the Law of the People’s Republic of China on Enterprise Bankruptcy (Trial Implementation) on December 2, 1986, and it came into operation on October 1, 1988 (the “1986 Chinese Bankruptcy Law”). This law is applicable to State-Owned Enterprises (“SOEs”). On April 9, 1991, the PRC Civil Procedure Law was approved, with Chapter XIX applying to the bankruptcy of non-SOE enterprises with legal person status. The drafting of a bankruptcy law in Vietnam followed from Article 15 of the 1992 Constitution of the Socialist Republic of Vietnam, which institutionalized the policy to “promote the development of the multi-sector market-oriented economy with… State management towards socialism.” The new bankruptcy law was one of the laws that the Vietnamese began drafting later that year with the goal of creating a “uniform, complete legal system.” The drafting process moved quickly, and the Vietnamese Law on Enterprise Bankruptcy (the “1993 Vietnamese Bankruptcy Law”) was enacted on December 30, 1993, and took effect on July 1, 1994.6 This law rejected the bifurcated Chinese approach of separate laws for SOEs and non-SOE legal person enterprises in favor of a single law that applied to both SOEs and non-SOE enterprises. It was also more expansive than the Chinese approach in that it applied to both legal person and non-legal person enterprises.