China’s Evolving Cross-Border Framework: A Conditional Step Towards Universalism?

The publication of the Enterprise Bankruptcy Law of the People’s Republic of China Draft Revision (“EBL Draft”) in September 2025 introduces a dedicated Chapter 14 on “Judicial Cooperation in Cross-Border Insolvency,” reflecting a step toward deeper engagement with international legal standards. But does the EBL Draft signify a full convergence with “Modified Universalism” or propose a conditional, hybrid model defined by territorial constraints? For international stakeholders in complex Chinese insolvencies, the answer is crucial for predictability and asset recovery.

Defining the Scope: Does the EBL Draft Reflect a Universal Application?

A core test for any universalist insolvency regime lies in its scope. The UNCITRAL Model Law on Cross-Border Insolvency (“MLCBI”) and Chapter 15 of the United States Bankruptcy Code (“US Chapter 15”) permit broad judicial cooperation within delimited sectoral boundaries. While adopting a comparable architecture, the EBL Draft explicitly embeds these limits.

The MLCBI permits exclusion of entities subject to special resolution regimes, such as banks or insurers. This optional carve-out reflects that systemically important financial institutions warrant treatment outside ordinary bankruptcy frameworks. U.S. Chapter 15 follows this logic. By contrast, the EBL Draft  Article 202 stipulates that the cross-border cooperation chapter “does not apply to financial institutions” or debtors otherwise outside the general scope of the EBL, which is reinforced by the presence of Chapter 13 in the Draft, titled “Financial Institution Bankruptcy.”

This sectoral boundary is formally consistent with MLCBI but carries sharper implications for universalism. This framework generally accepts coordination as a rule, but withholds it when domestic financial stability takes precedence. Consequently, the Draft demonstrates not universal application, but conditional universalism rooted in regulatory caution.

The Jurisdictional Gateway: Convergence on COMI, Divergence on Conditions

The EBL Draft Article 204 adopts the Center of Main Interests (“COMI”) standard, permitting recognition when foreign proceedings commence at the debtor’s COMI. Yet this convergence remains superficial. Unlike the Model Law and Chapter 15, the EBL Draft embeds a stricter, time-based conception of COMI. Drawing on standards developed under the Supreme People’s Court Opinion on Taking Forward a Pilot Measure in Relation to the Recognition of and Assistance to Insolvency Proceedings in the Hong Kong Special Administrative Region (See Article 4), recognition requires that COMI remain continuously located in the foreign jurisdiction for a defined period, typically six months, before filing. This temporal threshold reflects a deliberate policy choice. It rejects the flexible, fact-intensive approach of U.S. courts.

By conditioning recognition on COMI stability, the EBL Draft prioritizes anti-forum-shopping over procedural openness. COMI thus operates less as a neutral connecting factor than as a gatekeeping device.

The Prerequisites for Recognition: Comity vs. Reciprocity

MLCBI and US Chapter 15 operate on the principle of comity. Under both, recognition is granted when a foreign proceeding meets the procedural and jurisdictional criteria and is refused only if the proceeding is “manifestly contrary” to the public policy of the recognizing state.

By contrast, the EBL Draft retains reciprocity as a formal prerequisite in Article 204. Although Chinese judicial practice has shifted toward presumed reciprocity, the inclusion of the reciprocity requirement indicates a legislative emphasis on mutual assurance and sovereign prerogative. The divergence deepens through expansive refusal grounds. Beyond public policy, recognition may be denied for violations of PRC law, national sovereignty, security, social public interests, or the “legitimate rights and interests” of domestic creditors. These open-ended standards vest courts with broad discretion and recast recognition as contingent rather than presumptive.

The EBL Draft thus embeds cross-border cooperation within a sovereignty-centered framework, reinforcing conditional universalism at the recognition stage.

Relief, Coordination, and the Territorial Constraint

The practical strength of a universalist regime lies in the relief available to protect the global asset pool. The issue here is whether the EBL Draft confers the type of automatic and mandatory relief characteristic of a universalist framework.

Different from Article 20 of MLCBI and §1520(a) in US Chapter 15, the EBL Draft Article 204 authorizes courts to grant assistance at discretion, rather than by operation of law. The absence of mandatory relief preserves judicial control but weakens predictability and dilutes coordination effects. This discretion operates alongside a territorial constraint. Upon recognition, assets located within the PRC must first satisfy enumerated domestic priority claims, including secured, employee, consumer, social insurance, and tax claims. By ring-fencing local assets, the Draft limits the pool available for universal distribution.

Nevertheless, the EBL Draft adopts a limited coordinating mechanism. Article 205 incorporates an anti-double recovery rule, preventing creditors from exceeding proportional recovery across proceedings. While it promotes horizontal fairness, it cannot offset the combined effects of discretionary relief and territorial priority.

Conclusion: A Strategic Hybrid and the Path Ahead

The EBL Draft Chapter 14 reflects a selective alignment with international standards by incorporating key features of modified universalism, including the adoption of the COMI standard and the anti-double recovery rule.

Yet, the Draft ultimately charts a path of conditional universalism. Its retention of the reciprocity principle, reliance on discretionary relief, and mandatory domestic priority rules preserve sovereign oversight and subordinate universal distribution to domestic policy objectives. These features reflect a deliberate design to expand cross-border cooperation, while safeguarding the core regulatory interests that remain central to China’s regulatory philosophy.

It is also crucial to note that, released on 12 September 2025 for public consultation, the Draft remains subject to further revision through feedback and subsequent review cycles. This procedural posture introduces short-term uncertainty for foreign creditors and restructuring professionals, yet it also preserves institutional flexibility. As outbound restructurings and multinational defaults involving Chinese enterprise groups continue to increase, sustained engagement with comparative practice may gradually recalibrate contested elements such as reciprocity, discretionary relief, and territorial priorities. Therefore, the Draft should not be understood as a settled endpoint, but as an interim framework that conditions present cooperation while leaving open a path toward deeper convergence with modified universalism.

Yuxiang Fei is a current LL.M. candidate at New York University School of Law, where he serves as a Graduate Editor for the Journal of Law and Business and a Research Fellow for NYU Pollack Center for Law and Business. His academic focus is on corporate law, cross-border insolvency, and commercial arbitration. Prior to his LL.M., Ethan gained experience in corporate restructuring, commercial dispute resolution, and foreign direct investment with leading Chinese and international law firms. His work involved projects such as the reorganization of a mining conglomerate and advising European automotive suppliers on joint ventures in China. He graduated with honors from Shandong University School of Law in China, during which he also served as a Student Editor for the China Oceans Law Review and was a decorated advocate and researcher in international moot court and moot arbitration competitions.