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Does bankruptcy law prevent internalization of environmental costs: evidence from China

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Li, Xingwei (2023) Does bankruptcy law prevent internalization of environmental costs: evidence from China. Journal of International Business and Law, 23 (2). pp. 159-193. ISSN 2151-7649

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Abstract

The ‘polluter pays’ principle has been implemented by several pieces of environmental legislation in China as a means to confront the issue of liability in the case of bankrupt polluters. The principle requires those responsible for environmental damage or imminent threats of damage to bear the necessary costs of remediation and prevention. However, in practice, the principle has been rendered relatively ineffective due to current Chinese bankruptcy law. Environmental costs of bankrupt polluters are paid by public funds, which contradicts the polluter pays principle. The current research on Chinese jurisdiction and environmental liabilities in bankruptcy law has mainly focused on the importance of environmental liabilities and their significance in the context of bankruptcy. However, the existing research lacks empirical case studies and fails to address important matters, such as identifying who bears the environmental costs of bankrupt polluters or providing practical solutions for realizing internalization of environmental costs in bankruptcy cases. To fill this research gap, this paper considers several detailed case studies to examine real-life scenarios where bankrupt polluters are involved. On analyzing these cases, public funds are found to have paid for environmental costs of bankrupt polluters, contaminated sites are often left unremedied following bankruptcy, and in some cases, bankruptcy law has become a tool for some companies to escape their environmental responsibilities. This paper concludes with recommendations for reform of Chinese Enterprises Bankruptcy Law.

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