China’s private sector is facing a growing wave of bankruptcies, restructurings and liquidations, with companies that have operated for more than a decade increasingly unable to withstand mounting financial pressure. The failures are being reported across manufacturing, technology, cosmetics, pharmaceuticals and other sectors, highlighting the extent of the cash-flow difficulties confronting private businesses.
The pressure is being driven by a combination of shrinking demand, the collapse of China’s property market, depleted local-government finances, shifting export orders and tighter bank lending. Together, these pressures are making it increasingly difficult for companies to maintain working capital, pay suppliers and collect outstanding payments. For some businesses, judicial bankruptcy has become one of the few remaining options.
The crisis is particularly severe among manufacturers. Companies are struggling to collect payments from customers while being required to pay suppliers upfront. Businesses that have operated for more than a decade and possess technology considered among the best in their industries are also being affected. Upstream suppliers of materials and chips have themselves come under financial pressure, forcing manufacturers to pay in cash and wait for goods to become available.
At the other end of the supply chain, export orders have shifted towards Southeast Asia, reducing demand for some Chinese manufacturers. At the same time, financial pressures on local governments have affected their ability to make payments to businesses. Payment terms from major customers have reportedly lengthened dramatically, in some cases moving from three months to as long as one year.
For some factory owners, shutting down has become a difficult decision of its own. Entrepreneurs facing losses are reportedly reluctant to close because they fear tax inspections and demands for back taxes. As a result, businesses that are no longer financially viable may continue operating even when owners are considering closure.
Technology firms also caught in the squeeze
The difficulties facing China’s private sector are illustrated by the collapse of Foshan Guanjin Optoelectronic Technology Co. Ltd. On July 28, a court in Foshan ruled that the company had gone bankrupt and terminated its bankruptcy proceedings. The court said the company was unable to repay debts when they became due and did not possess sufficient assets to cover its liabilities. Its bankruptcy administrator completed the distribution of the company’s remaining assets.
Guanjin Optoelectronic was founded in 2011 and had operated for approximately 15 years. The company had been recognised by provincial authorities as a “specialized, sophisticated, distinctive, and innovative” enterprise, an official designation used to identify technologically advanced small and medium-sized companies.
Its collapse illustrates the widening gap between China’s emphasis on industrial upgrading and the financial difficulties facing many of the private companies expected to contribute to that transformation. A company that had received official recognition for its technological capabilities nevertheless became unable to meet its financial obligations.
The pressure is not restricted to manufacturing. Lagou, once a leading Chinese online recruitment platform, entered bankruptcy review in April and formally began bankruptcy restructuring proceedings in May, according to Chinese news portal Sohu. At its peak, Lagou had more than 20,000 businesses using its platform and had completed multiple rounds of financing.
The restructuring comes as China’s previously rapidly expanding online business sector faces a broader downturn. The deterioration of private-sector conditions is therefore reaching companies operating in technology and internet-related services as well as traditional industrial businesses.
The cosmetics industry has also experienced a sharp increase in corporate failures. According to another report published by Sohu, at least 20 cosmetics companies entered bankruptcy proceedings or compulsory liquidation during the first half of this year, almost twice the number recorded during the same period in 2024.
In July, Beijing Tongrentang Cosmetics Co., which was founded in 2005, became one of the companies placed into compulsory liquidation proceedings. The case adds another long-established business to the growing list of companies facing serious financial difficulties.
Bankruptcy spreads into traditional industries
The pharmaceutical sector has also begun showing signs of the broader pressure. On July 31, the Chongqing Municipal Medical Products Administration published one of its latest lists of companies whose pharmaceutical distribution licences had been cancelled at the companies’ own request for business reasons.
The list included companies that had operated for decades. Cancellation of a business licence is different from court-ordered bankruptcy, but the departure of long-established pharmaceutical distributors demonstrates that financial strain is extending into traditional industries with long operating histories.
Taken together, the bankruptcies, restructurings, compulsory liquidations and business exits point to deeper problems affecting China’s private-sector economy. The pressures have emerged alongside the Chinese Communist Party’s effort to move the economy away from a more market-oriented model towards greater state control.
The collapse of the property market has been particularly damaging. As the property bubble burst, local-government finances weakened, while private companies that depended on demand connected to property and local-government spending faced increasingly difficult conditions. The resulting financial pressure has spread through supply chains and contributed to the growing number of companies entering bankruptcy or restructuring.
The consequences are also extending beyond business owners. Employees, suppliers and other creditors are increasingly bearing the cost of corporate failures. Entrepreneurs who have invested their personal assets in their companies often continue operating until the last possible moment. By the time a company finally enters judicial proceedings, its remaining assets may have already been severely depleted.
This creates further losses for those connected to the business. Banks may take factories that were pledged as collateral, while employees who have worked for companies for decades and suppliers that extended financing can be left carrying substantial unpaid debts. In some cases, suppliers and employees reportedly recover less than 10 per cent of what they are owed, leaving them to absorb losses exceeding 90 per cent.
The pattern across manufacturing, technology, online services, cosmetics and pharmaceuticals shows that the pressure is not confined to a single sector. Companies with long operating histories, established technologies, significant customer bases and previous official recognition are all appearing in bankruptcy and liquidation proceedings.
The growing wave also reveals the vulnerability created when declining demand, weakened property markets, tighter financing, changing export patterns and strained local-government finances converge. For China’s private enterprises, the immediate problem is increasingly one of survival that maintaining enough cash to purchase materials, pay workers, meet supplier obligations and wait for customers to settle increasingly delayed bills.
The collapse of companies such as Guanjin Optoelectronic, the restructuring of Lagou, the rising number of cosmetics liquidations and the exit of long-established pharmaceutical distributors together provide a picture of a private sector under mounting financial stress. As companies continue to struggle with cash flow, the effects are moving through the wider economy, from factories and suppliers to workers, banks and creditors.
