The proposals for the 15th Five-Year Plan emphasize the need to develop venture capital and establish mechanisms for increasing investment in future industries and sharing risks. How can China cultivate a fertile ground for innovation to better support the growth of startups? In the fifth installment of the "Diagnosing China's 2026 Economy" series, Guancha.cn invited Tian Xuan, a distinguished professor at Peking University and a deputy to the 14th National People's Congress, to share his analysis.
Tian Xuan pointed out that innovation and entrepreneurship carry extremely high risks, often described as a "survival of the fittest" scenario. While successful entrepreneurs are highly visible, this represents a survivor bias—the reality is that the vast majority of startups fail. Risk-sharing, he explained, requires establishing mechanisms for error tolerance and trial-and-error, preventing entrepreneurs from bearing all the risks alone.
"As a deputy to the National People's Congress, I submitted a proposal last year urging the acceleration of legislation for a personal bankruptcy law targeting 'commercial natural persons'—entrepreneurs, individual businesses, and investors in small and medium-sized enterprises," Tian stated.
He noted that while China has an Enterprise Bankruptcy Law, it lacks a personal bankruptcy law for entrepreneurs. Many entrepreneurs sign agreements with unlimited personal liability clauses. If their ventures fail and cannot repay debts, they are forced to liquidate personal assets, such as properties, to settle obligations. Failure to do so results in being labeled "laolai" (delinquent debtors), who face restrictions like being barred from high-speed trains and flights, severely impacting daily life and economic participation.
Academic research by Tian's team reveals that many highly successful entrepreneurs are serial entrepreneurs. For instance, prominent U.S. entrepreneur Elon Musk faced multiple financial collapses before achieving success. Without error-tolerant or risk-sharing mechanisms, a single failure could leave entrepreneurs burdened with insurmountable debt, severely dampening public willingness to venture into entrepreneurship and pursue disruptive innovations.
"People worry: if failure means becoming a delinquent debtor, who would dare to start a business or pursue groundbreaking innovations? Eventually, everyone may opt for safer, conventional paths," Tian remarked.
A core aspect of risk-sharing is societal tolerance toward "honest but unfortunate" entrepreneurs, offering them a chance to start over. Specifically, well-designed systems should allow for lawful debt exemptions after business failure, while preventing fraudulent debt evasion, enabling entrepreneurs to re-enter the market unburdened.
Academic studies support this perspective. Tian cited his research analyzing data from over a dozen countries, which found that more forgiving personal bankruptcy laws significantly incentivize entrepreneurship and innovation. Similarly, comparative studies of U.S. states indicate that regions with higher personal bankruptcy exemption limits exhibit more vibrant entrepreneurial and innovative activities.
Currently, Shenzhen (2021) and Xiamen (2025) have pioneered personal bankruptcy pilot programs. Shenzhen, in particular, demonstrates how an active entrepreneurial culture and inclusive bankruptcy regulations can mutually reinforce a thriving innovation ecosystem. However, at the national level, such legislation remains absent.
Tian advocated for expediting national-level personal bankruptcy legislation or adding dedicated chapters to the existing Enterprise Bankruptcy Law. This would provide legal "restart" opportunities for entrepreneurs who fail due to market conditions, technological challenges, or unforeseen circumstances despite operating in good faith. Such a step represents a crucial improvement China can and should pursue in building effective risk-sharing mechanisms.