Insolvency and Bankruptcy Based on Islamic Principles Within China – An Data-Driven Analysis and Framework

Abstract

Objective: The objective of the article is to provide a solid outline how Islamic bankruptcy principles can be integrated into the Chinese legal system. Islamic bankruptcy law and Islamic finance have taken on a growing role in modern economies, with several governments aiming to align the economic system with Islamic principles in addition to solving some of the shortcomings of existing financial regulations related to bankruptcies. China has, within the last 40 years, become a major economy with significant development of its legal system. Theoretical framework: For the theoretical framework we utilized a comparative legal analysis framework for the integration, given that Islam emphasizes the importance that there should be no distinction between balance sheet insolvency and cashflow insolvency, as well as the importance of personal responsibility for the debts incurred. Method: For the method, we deployed a comparative analysis of the Islamic and Chinese bankruptcy legal framework. Results and conclusion: The article has presented a solid outline of the Islamic and Chinese bankruptcy laws and how Islamic principles can be integrated into the Chinese legal system. The arising system in the form of either a separate legal system or one integrating these principles into the existing bankruptcy regulations can significantly strengthen debtor responsibility and recovery rates, as well as encourage fairer business practices. Implications of the research: The research provides some critical insights into how Islamic Finance may be adjusted to support and reduce bankruptcy within China, outlining the major benefits of Islamic finance in strengthening the financial system. Originality/value: The article provides a unique outline of Islamic and Chinese bankruptcy laws and how Islamic principles may be integrated into the Chinese legal system.