The ecology of insolvency: Why the same legal framework produces different outcomes in China's cross‐border restructurings

Abstract The cross‐border insolvency interaction between Hong Kong and Mainland China represents a rare and unusually well‐documented example of sustained cooperation—and recurring friction—between a common law jurisdiction and a civil law jurisdiction operating within a single sovereign framework. Since the 2021 Record of Meeting on mutual recognition of insolvency proceedings, Hong Kong courts have recognised mainland restructuring proceedings ( Re USUM Investment Group Ltd [2026] HKCFI 1320), while mainland courts have grappled with—and largely declined—recognition of Hong Kong insolvency proceedings, most conspicuously in the Evergrande liquidation. This asymmetry is not a doctrinal anomaly; it is a window into the deeper question of why legal systems that are formally equipped for cooperation fail to achieve it in practice. This article explains the divergence through the concept of financial ecology —the configuration of investment actors, depth of capital markets, cultural norms surrounding business failure, and logic of financial regulation that shape how legal rules operate in practice, within a system where the state exercises dominant structuring power over market outcomes. Drawing on Douglass North's institutional theory, Katharina Pistor's theory of legal coding, and Mancur Olson's logic of collective action, it develops a three‐layer analytical framework—text, operation, ecology—to analyse the cross‐border insolvency dynamic between Hong Kong and Mainland China. Through structured case studies of Evergrande, Sunac, Country Garden, and Re USUM Investment Group , it demonstrates that the effectiveness of identical legal tools depends on the homogeneity of the creditor constituency, and that the persistent gap between recognition and enforcement reflects deeper ecological constraints that statutory reform alone cannot resolve. It argues that interoperability—cooperation mechanisms that function within existing ecological constraints rather than assuming their elimination—is the appropriate policy objective for China's ongoing bankruptcy law reform.