Cover Story: China Rewrites the Rules of Financial Failure

When China Huishan Dairy Holdings Co. Ltd. collapsed in 2017, it didn’t just bring down a once-celebrated milk brand — it exposed deep cracks in a system ill-prepared for corporate failure.

The company’s Hong Kong–listed shares plunged 90% in a single day, triggering a chain reaction across creditors, employees and suppliers throughout northeast China.

Behind the implosion was a web of debt and deception. A year earlier, short-seller Muddy Waters had accused the Liaoning-based conglomerate of fabricating its alfalfa farming business — an allegation that proved true. What followed was one of China’s most sprawling bankruptcies involving 83 affiliated companies, 8,000 employees and more than 30 billion yuan ($4.2 billion) in liabilities.