Models of Corporate Governance for Chinese Companies

Abstract

This paper examines China’s recent approach to the development of corporate governance and discusses some major corporate governance issues that need to be resolved. It focuses on the corporate governance issues of China’s larger state owned enterprises that have been corporatised and partially privatised. While the state enterprise sector has been on decline in terms of its contribution to industrial output, its dominance in urban employment, key industries and access to bank finance continues. The publicly listed and partially privatised enterprises portends in many ways the future path in corporate governance arrangements for all other kinds of enterprises in China. The study is based on results of survey data collected by the author on Shanghai’s publicly listed companies. An attempt is also made in this paper to outline a new corporate governance model that may be more appropriate for China’s social and economic conditions. The paper is organised as follows. Section 2 outlines the way the Chinese government has approached the development of corporate governance structures in China in recent years. Section 3 examines some major issues for corporate governance development in China. Section 4 outlines a new corporate governance model that may be better suited to China for the near future. Section 5 provides some conclusions.

Ownership Structure, Corporate Governance and Company Performance in China

“…However, there is a long road for China to travel in its corporate governance of listed companies. Tam (2000) argues that the development of corporate governance systems in China has been too rapid. Attempts to adopt western-style governance practices have been fraught with difficulty because of the lack of laws and regulations governing commercial activities.…”

“…As pointed out by Tam (2000), neither the establishment of a modern corporate system nor the development of a corporate governance model in China would by itself deliver every reform goal and serve as a panacea for all China's problems. Instead, in developing corporate governance arrangements that are more appropriate to the nation's specific economic conditions and social realities, the process could serve as a powerful focal point for contemplating and bringing about other related changes at the macro-and micro-levels to produce improved outcomes in key areas including corporate performance.…”

“…If a choice had to be made, it should be about the direction of the development path rather than the stylized model (Tam, 2000). Apart from this broad question of the governance model, there also exist several specific issues that are critical to developing corporate governance arrangements for China's prospective.…”

How ownership and corporate governance influence chief executive pay in China's listed firms

“…In 2005 the government resurrected the plan to sell state shares in listed firms and made the plan more palatable for private investors by reducing the number of new IPOs (thereby reducing the supply of other new shares) and requiring firms to compensate private investors (the compensation will be mainly by way of issuing bonus shares). The reorganization of listed firms has been modeled on U.S. corporations in a bold attempt to instill western-style discipline and incentives (Tam, 2000). For example, managers have more discretion in making business decisions and they are held accountable to stockholders rather than to the state and the political hierarchy.…”

A survey of enterprise reforms in China: The way forward

“…The corporate governance structures that presently exist in China are not generally considered an effective governance system (see Tam, 2000;Gul & Zhao, 2001). The insider-dominated system of corporate governance, and the pervasiveness of the state and party, has created a lack of truly independent directors, which has not facilitated the establishment of good corporate governance.…”