China Cracking Down on ‘Fly-by-Night’ Foreign Companies

Chinese regulators are cracking down on the growing number of foreign investor companies that flee without undertaking the legal liquidation process.

Chinese authorities have released joint guidelines on the “abnormal withdrawal of foreign investor companies,” saying the Chinese government will sue offending companies to hold them responsible for their liquidation.

This is the first time for the central government to come up with guidelines on these “fly-by-night” companies.

According to the guidelines, companies and workers adversely affected by the abnormal liquidation of foreign investor companies can file a lawsuit.

The court will then hold the companies responsible based on specific circumstances according to treaties on judicial assistance in civil, commercial and criminal matters with other nations.

If foreign investor companies or operators cannot repay their debt obligations with their remaining properties in China, they must compensate with their properties in their home countries under a bilateral treaty on “judicial assistance in civil and commercial matters.” In other words, “fly-by-night” companies must take responsibility until all their debts are cleared.

Furthermore, if foreign investor companies come under suspicion of committing serious crimes such as tax evasion, China is likely to demand extradition of those responsible.

orionha@donga.com