BEIJING: On a breezy autumn evening in Beijing, Gu An stepped out of a restaurant after splurging on dinner to impress a potential business partner.
A woman across the street recognised him and yelled: “Gu An, owe money, pay money!”
Gu froze for a moment but kept walking, pretending not to hear. His business partner mumbled something about the weather to mask the awkwardness. But the damage was done. The deal Gu had hoped to secure that night did not materialise.
The woman was a former employee whose wages Gu still owes after his ticketing software business folded during the Covid-19 pandemic in 2020-2023. Today, he owes about 30 million yuan (S$5.6 million) in personal debts.
“If I could declare personal bankruptcy, I would gladly do it immediately,” he told The Straits Times.
Personal bankruptcy allows individuals who cannot repay their debts to enter a court-supervised process to restructure or write off part of what they owe.
If Gu were in a country such as Singapore, he could have filed for personal bankruptcy and start over.
But in China, for now, there is still no countrywide legal route out although some provinces and cities have begun piloting local equivalents of a bankruptcy law.
That gap has drawn growing attention in China, where scholars, judges and policymakers – including during the country’s national parliamentary meetings in March – have renewed calls for a nationwide personal bankruptcy system to give failed entrepreneurs a legal way to start again.
China adopted an enterprise bankruptcy law in 2006, but it applies only to companies, not individuals.
Business owners who borrow in their own name, or who provide personal guarantees for corporate loans – both a common practice in China – remain personally on the hook for the debt even after their firms collapse.
The issue affects a vast number of people. As at May 2025, China had about 127 million sole proprietors, many of them operating with unlimited personal liability. Together, they support nearly 300 million jobs, meaning business failure can throw entire families and employees into financial difficulties.
The risks have grown as borrowing, particularly among individuals, has surged. Research by the Chinese Academy of Social Sciences shows that China’s household leverage ratio climbed to 59.4 per cent of gross domestic product (GDP) in 2025, from less than 5 per cent at the start of the century, raising the chances that individuals can fall into debt with no clear way out.
Professor Zhou Li’an, an economist at Peking University and a government policy adviser, said China needs a nationwide system to allow those who are “honest but unfortunate” a chance to rebuild their lives, rather than remain burdened by debt indefinitely.
“In a mature market economy, there must be both a way to enter the market and a way to leave it,” he said at a seminar in Beijing.
“Without an exit mechanism, business owners are like small boats in stormy seas – always at risk of capsizing, with no safe harbour,” he added.
Yet turning that logic into national policy has proved difficult, held back in part by entrenched cultural views about debt and responsibility.
In Chinese tradition, the idea that a debt must be repaid runs deep. There is a long-held belief that a father’s debt is a son’s responsibility, and if the son cannot repay it, that obligation passes to the grandson – a cycle of duty that is not meant to end.
Another obstacle is that China’s credit and asset registration systems remain incomplete and poorly connected, making it difficult to verify whether a debtor truly cannot repay or has hidden or transferred assets.
Without reliable ways to track income and property, many worry a personal bankruptcy law could be used to evade debt rather than resolve it.
Even so, China has begun experimenting with small-scale reforms.
Since 2019, several provinces and cities, including the coastal provinces of Jiangsu and Zhejiang and cities Shenzhen and Xiamen, have introduced pilot schemes allowing forms of personal bankruptcy under strict conditions.
By 2023, about 260 county-level jurisdictions – roughly one-tenth of the national total – had rolled out arrangements broadly equivalent to a personal bankruptcy system.
Research by Prof Zhou and his team suggests that such reforms encourage entrepreneurship.
Using nationwide business registration data from 2015 to 2023, the researchers compared counties that introduced pilot schemes with those that did not, and found that the number of newly registered business entities was about 8.3 per cent higher in pilot regions.
The rise was most pronounced among higher-risk entrepreneurs, including sole proprietors and private businesses, rather than state-owned firms.
Highly educated individuals, who often have the option of stable salaried employment, were likewise more likely to go into business.
The findings suggest that the availability of a personal bankruptcy mechanism gives people greater confidence to take entrepreneurial risks, knowing that failure does not necessarily lead to a lifetime of debt.
Bankruptcy reforms can benefit creditors as well. In areas with pilot schemes, cases of debt evasion and resistance to court enforcement declined.
“For creditors, this is a rational way to cut losses,” Prof Zhou said.
He cited a case in Wenzhou, a city in Zhejiang province known for its vibrant private sector, where an entrepreneur who owed 5.8 million yuan was allowed to write off the debt after repaying less than one-tenth, once the court confirmed he had no hidden assets.
“If you insist that he repays the full amount, he may lose hope and stop trying altogether, and in the end you may not recover a single yuan. Giving him a way out makes it more likely the creditor gets something back,” said Prof Zhou.
For Gu, who lives in Beijing where personal bankruptcy reforms have yet to reach, the lack of a way out has been daunting.
He once ran a thriving ticketing software company serving hotels and tourist attractions, with about a staff of 300 at its peak. When the Covid-19 pandemic brought travel to a standstill in 2020, revenue plunged.
Believing the downturn would be temporary, he borrowed heavily to keep the business afloat.
When Covid-related movement restrictions in China were lifted nearly three years later at the end of 2022, he borrowed again, exhausting his credit with banks and the goodwill of family and friends, in a last-ditch effort to ride the expected economic recovery.
The rebound never came, leaving him buried in debt.
“I’m not ashamed that my business failed,” said the self-described serial entrepreneur. “I’m just frustrated that the restrictions placed on me make it hard for me to keep doing business and get back on my feet.”
Because he has been unable to repay his creditors, the courts placed him on a blacklist as a “dishonest debtor”, commonly known in Chinese as lao lai, a derogatory term for defaulters. Being on the blacklist means he is barred from taking planes or high-speed trains, making it difficult to travel to pursue new deals.
With all his bank accounts frozen, he sometimes has to pay for even a bowl of noodles using an Alipay account under a friend’s name. When meeting potential business partners, he avoids giving his real name, fearing they will search public databases and discover his debts before he has a chance to explain.
Despite the setbacks, he is still trying. In 2025, he explored developing a fortune-telling app. In 2026, he hopes to find an artificial intelligence-related product.
Asked what he would do first if he could clear his debts through bankruptcy, Gu paused for a long time.
“I have spent my every waking moment in the past five years thinking how to make enough money to pay off everything,” he finally replied.
“To be honest, I haven’t had the chance to think about what comes after that.” - The Straits Times/ANN
