Whose Voice, Whose Interests?
15 Pages Posted: 16 Apr 2021
Date Written: 2015
This paper looks at whose voice is heard and whose interests are protected in the making of finance-related laws in China. To ensure its accuracy, the paper focuses on a real-life case study of the making of bankruptcy laws in 1986 and 2006. Laws provide a set of incentives and constraints on their intended users and beneficiaries. In the context of bankruptcy law this means determining who shall bear the risk of corporate failure, whose interests shall be prioritized in corporate exit or reorganization, and who shall be the mediator/decision-maker in a case of conflict. Exploring bankruptcy law-making process in China sheds light on the interaction between and pressures exerted by the various stakeholders, which in turn informs the debate of representation and participation in China’s legislative process. While it is generally accepted that the key and dominant player is the Party-state whose representatives prepare, debate, vote on and promulgate the law, I propose that that is not a complete picture. The Party-state is subject to multiple internal influences and interests they wish to protect. These internal motives are influenced by certain powerful external users and stakeholders of the proposed law who try to protect their own interests. Although the Party-state is the ultimate law-maker, it allows deliberations and interjections by the interested parties. As a result, the interests and motivations of the two groups interact and affect each other leading to a compromise formulation of the new law.
The discussion in this paper is informed by what we know about the passage of the 2006 bankruptcy law. The experience with making the older 1986 law will also be included where relevant. Thanks to the fundamentally opposed interests at play it took many years, numerous drafts and uniquely bumpy and disharmonious legislative run to reach an acceptable compromise each time which makes the bankruptcy law a perfect case study of the interests at play in corporate law-making in China and in transition from plan to market in general. The key clashes included ideology, the position and adequate protection of workers, the role and rights of financial creditors (as represented by the banks) and the admissibility of international pressure and experience. In other words, the key to passing the 1986 and 2006 laws was whether and to what extent should the ingrained demand for worker protection and social welfare provision be compromised to accommodate the need for further economic growth and how far to accommodate the demands of the increasingly powerful and independent financial creditors (i.e. mostly private companies and banks) and the international community.
Although the paper focuses on bankruptcy law, the findings may be applicable to a variety of corporate finance-related laws since it uncovers the process and mechanisms used in law-making more broadly.
Keywords: law & economics; China; bankruptcy law; law-making; state control; political economy
JEL Classification: G21, G33, H70, H81, J52, L13, N25, P26, P37
Suggested Citation: Suggested Citation