Struggling SOEs exempt from bankruptcy law

China's worst-performing state-owned enterprises will be exempt from the country's new bankruptcy law until the end of 2008, the Financial Times reported. The law, which was passed in August and is due to come into effect in June 2007, will enable creditors and investors to recover money from underperforming companies by filing for bankruptcy. But it will not apply to 2,116 SOEs deemed by the authorities to be at financial risk until 2008. Professor Li Shuguang of Beijing's China University of Politics and Law, who is one of the authors of the new law, told the newspaper that this was intended to ease the social impact by giving precedence to employee health and wage claims over creditors. Despite the delay, Li admitted it would be a challenge to resolve all wage claims, which could total thousands of billions of renminbi. He said that central and local governments may have to step in to cover the shortfall. Li added that the bankruptcy law is "the most important law in China's development of a market economy".