But one man, embittered by the fleecing of foreign creditors of the failed Zhu Kuan group, warns that even after the law is implemented, the system will still be rigged.

Neil McDonald is an insolvency lawyer currently acting for the provisional liquidators of Zhu Kuan. The firm, incorporated in Macau, was the ``window'' company of the Zhuhai municipal government. It borrowed heavily from foreign and mainland banks to fund development projects for the Zhuhai region but defaulted on its loans in 1999 and was wound up last year.

The mainland's legal system has allowed domestic parties to make off with Zhu Kuan's assets, leaving foreign banks, which are still owed around HK$7 billion, without their rightful share, McDonald says.

This is possible in China because decisions of the court handling the liquidation on the mainland can be dictated behind the scenes by the government, which owns Zhu Kuan.

``The Zhuhai Intermediate People's Court has permitted the Zhuhai government to seize assets which should be available for realization and distribution to all unsecured creditors,'' he says. ``It has ignored the provisional liquidators' requests for assistance and it has actively interfered in the provisional liquidators' attempts to obtain redress against the Zhuhai government. In simple terms, it has permitted the government's interests to be preferred to the interests of unsecured creditors.''

The draft bankruptcy law cannot by itself cure this rotten system, warns McDonald, who is a partner at international law firm White & Case. ``The People's Court has historically preserved and enforced the interests of `the State','' he says. ``Indeed, this principle is enshrined in the proposed Enterprise Bankruptcy Law.''

So why is the draft law being widely welcomed?

``To look at it positively,'' says Joanne Oswin, who leads the business recovery services practice of PricewaterhouseCoopers in Asia Pacific, ``such a comprehensive law, mostly consistent with international norms, being put on the books is a big step forward for foreign liquidators trying to seize assets on the mainland.''

Oswin acknowledges that fleecing of foreign lenders does occur. ``In a number of recent failures of Chinese entities, it seems a lack of transparency may have permitted substantial transfers to some managers, owners and creditors at the expense of others.'' But on paper, at least, she says, the draft bankruptcy law goes some way to addressing this by giving the administrator the power to review questionable transactions which might have taken place in the months leading up to the bankruptcy.

For Oswin, the biggest question mark over the draft law is the lack of technical expertise in the courts, which will have to implement it.

``The draft law places a lot of responsibility and discretionary authority on the People's Courts. So the effectiveness of the law very much depends on the technical competence, experience and even availability of the court.''

Oswin's colleague Rainier Lam says the mainland's move towards a market economy has been extremely rapid: ``Only 25 years ago private property rights weren't even recognized on the mainland.''

He sees the draft law as part of a long-term move in the right direction.

``Perhaps the most important thing about the draft is that it acknowledges that there is a potential end to the life of an enterprise because this is a step towards a number of related changes we expect to see governing all manner of exits from investments in China,'' Lam says. ``The bankruptcy law would be one of the cornerstones of a more efficient market economy. It's an important recognition by China that market forces [must have an impact on] the restructuring of major enterprises.''

But to keep the markets happy, the government needs to win over those such as McDonald who are advising foreign investors, because China is heavily dependent on foreign investment flows.

McDonald thinks the draft bankruptcy law falls short. ``The draft law might not have been of any assistance to the provisional liquidators in the Zhu Kuan collapse, because while Article 8 of the draft law expressly provides for the recognition of foreign liquidations, it only allows this if the overseas liquidation does not violate the interests and rights of [the government] and domestic creditors.