As China's economy undergoes structural transformation, many sectors have resumed economic activities. But the absence of an individual bankruptcy system has made it difficult for individuals to formally withdraw from the market when they encounter risks, resulting in unbalanced development of market players and the economic cycle. Also, the continuous increase in the debt ratio of individuals has created rising social problems due to disputes over debts.

Under such circumstances, the Fourth Plenary of the 19th Central Committee of the Communist Party of China advanced to expeditiously improve the socialist market economy system. And the CPC Central Committee as well as the State Council, China's Cabinet, reiterated their pledge to establish a nationwide individual bankruptcy system and promote legislation on bankruptcy.

In response to the central leadership's decision, the standing committee of Shenzhen people's congress issued a draft Shenzhen Special Economic Zone Individual Bankruptcy Ordinance from June 2 to June 18 to solicit public opinions. The draft has 13 chapters and 157 articles, which include the scope of application, detailed regulations, and supporting procedures for declaring individual bankruptcy. The draft regards an individual bankruptcy system as a means to give a second chance to "honest but unlucky" businesspeople.

An individual bankruptcy system will provide reliable guarantee for such people while excluding those who use tricks to evade paying debts and those who cannot repay debts because of excessive consumption. The draft adheres to the principle of honesty and credit to protect the interests of all the parties involved, in order to create a stable, fair and transparent business environment ruled by law.

Several years of research and pilot explorations in Taizhou and Wenzhou, Zhejiang province, show China can establish a nationwide individual bankruptcy system. The draft incorporates the lessons from practical experiences and international systems to launch an individual bankruptcy system in Shenzhen, which is of great significance for implementing such a system across the country.

First, the establishment of an individual bankruptcy system is conducive to improving China's legal system, which in turn would enable the country's market players to formally withdraw from the market, and thus strengthen the socialist market economy system. In addition, China's economic exchanges with foreign countries would become smooth and further promote economic globalization. A formal individual bankruptcy system will also help overcome global financial crises, promote economic development and improve Chinese people's livelihoods.

Second, an individual bankruptcy system will promote self-correction in the financial market and improve the construction of the credit system. It will also help reduce financial risks and maintain a healthy financial order.

Third, such a system will strike a balance between the interests of creditors and debtors, safeguarding social harmony and stability. For debtors, a sound individual bankruptcy system would help them ease the debt pressure, and give them another chance to restart their businesses. For creditors, it would help them retrieve losses as much as possible and prevent their assets from turning into losses. On the social level, it would help establish a healthy relationship between debtors and creditors, and reduce violent debt collection incidents, and therefore help maintain social stability.

And fourth, an individual bankruptcy system will help sharpen market players' competitive edge, and encourage start-ups to promote innovation to the maximum, which could make innovation a strong driving force for the economy.

For a market economy, an individual bankruptcy system is essential. But to establish a sound individual bankruptcy system, the authorities should make a clear distinction between "honest but unlucky" market players and those who avoid paying debts by faking bankruptcy, and build a series of support mechanisms including a social credit system and individual property registration system to prevent bankruptcy frauds and safeguard public interests.

Let's hope the Shenzhen pilot will play a key role in establishing a nationwide individual bankruptcy system.

The author is a researcher at the School of International Law, Southwest University of Political Science and Law.