Master’s Degree programme
in Languages, Economics and Institutions of Asia and North Africa Second cycle (D.M. 270/2004)
Final Dissertation
The Corporate Governance
in China: a Comparative Perspective
Supervisor
Ch. Prof. Michela Cordazzo Assistant supervisor Ch. Prof. Franco Gatti
Graduand Maria Maddalena Turci Matriculation Number 860426
Academic Year 2016 / 2017
INDEX
引言………...…4
INTRODUCTION………...10
CHAPTER 1 - THE EVOLUTION OF THE CORPORATE GOVERNANCE IN THE PEOPLE REPUBLIC OF CHINA 1.1. The Economic Reforms in China………...17
1.1.1. The Industrial System in China………..18
1.1.2. The Financial System in China………...19
1.1.3. The Banking System in China………...21
1.1.4. The Development of Stock Market in China………..22
1.2. The Importance of Corporate Governance in China………...23
1.3. The Evolution of the Corporate Governance Practices in the SOEs…………...24
1.3.1. The First Stage (1978-1983)………...25
1.3.2. The Second Stage (1984-1992)………..26
1.3.3. The Third Stage (1993-2003)………...28
1.3.4. The Fourth Stage (2003-today)………..31
CHAPTER 2 – SYSTEMS OF CORPORATE GOVERNANCE IN INTERNATIONAL CONTEXT 2.1. The Classification of Corporate Governance in International Context………34
2.1.1. The Difference between Common Law and Civil Law………..35
2.1.2. How Political Context Conditions Governance System………...36
2.1.3. Outsider and Insider Systems……….37
2.2. The OECD Principles………...40
2.3. Mechanism of Corporate Governance……….42
2.4.1. The Shareholders Model………42
2.4.2. The Stakeholder Model………...43
2.5. Variety of Bodies in Corporate Governance………44
2.6. Financial Reporting in Corporate Governance……….51
2.6.1. The Audit Committee……….52
2.7. The Regulatory Frameworks for Related Party Transaction………53
2.7.1. The International Accounting Standards………55
2.8. The Corporate Governance in Anglo-American Countries………...57
2.9. The German Model of Corporate Governance……….60
2.10. The Japanese Model of Corporate Governance………...64
CHAPTER 3 – THE CORPORATE GOVERNANCE IN CHINA 3.1. Structure of Chinese Corporate Governance………69
3.1.1. Chinese Two-Tier System………..71
3.2. Ownership Structure of Corporate Governance………...73
3.3. The Chinese Securities Regulatory Commission (CSRC)………...74
3.3.1. The Code of Corporate Governance for Listed Companies………...76
3.4. The Disclosure of Related Party Transactions……….77
3.5. The Auditing System………...78
3.6. Chinese Legal System………..79
3.7. The Institutional Investors………80
3.8. The Relevance of Stock Market………...81
3.9. The Impact of ASBE on Financial Results………..82
3.9.1. Convergence and Disparity of ASBE and IFRS………84
3.10. The Role of Banking System in Chinese Corporate Governance………..86
CONCLUSION………...88
ACKNOWLEDGEMENTS………91
引言
中国在过去這⼏几年⾥里，公司治理在经济、学术和政治中已经成为主要讨论 的议题。不仅中国，⽽而是所有国家都对于参与全球市场的公司治理感兴趣。 公司治理是⼀一种由规则、实践和程序组成的系统，公司通过这个系统来主 导和管控公司。公司治理本质上涉及到平衡公司众多利益相关者的权益， 如股东、管理层、客户、供应商、⾦金融家、政府和社会。Cadbury Report 提 出了公司治理包括维护公司、管理层、董事会、股东和利益相关者之间的 关系的监管机制（1993）。可以说，公司治理制度是动态的, 并且市场的国 际化对这些系统产⽣生了巨⼤大的影响，市场也从未停⽌止过。 中国共产党⾃自1949年执政以来，政治体制单⼀一化，整个社会的主要变化受 到政党的控制和推动。中国共产党对国家的控制和权⼒力在中国宪法中已经 明确规定。 在中国过去四年来，公司治理已经成为经济和政治讨论的中⼼心元素，但是 仍然相对薄弱。从1978的经济改⾰革来看，中国国内⽣生产总值年均增长率超 过9%，在新千年以后，股市也出现了明显的增长。 尽管公司治理这⼀一术语 在90年代第⼀一次出现，但它的体系演变始于以前，⾄至今仍在演变。市场全 球化的影响和国家间壁垒的开放，深刻地影响了公司治理及其演进和发展。 例如2001中国进⼊入界贸易组织(WTO)， 以及加⼊入经合（经济合作与发展组织（OECD Principles of Corporate Governance)，这些都是中国国际化的重 要因素。 这论⽂文的⽬目的是分析中国公司治理结构的演变，并了解公司治理的结构在 中国的发展程度。同时，也知晓中国在推⾏行运作公司治理系统上是如何取 得重⼤大进展的。在国际背景下的公司治理结构是不容易理解的,本⽂文的⽬目的 是研究公司治理的框架，在国际和中国的应⽤用。全球化对公司治理的国际 协调是⾮非常有益的。本⽂文希望能为国际环境下的公司治理提供⼀一个⽐比较视 ⾓角。 在第⼀一个章节中，这篇论⽂文考察了⾃自1949年中华⼈人民共和国对公司治理的 演变，分析了国内外经济变化对中国企业治理的重要意义。中国公司治理 演进的主要步骤分为阶段和历史时期，刚开始，经济是由国家控制，直到 现今，中国已经转变为⼀一个市场导向的系统。第⼀一阶段为1979⾄至1984，第 ⼆二阶段为1984⾄至1992，第三阶段为1993⾄至2003，最后⼀一个为2003直到现今。 第⼀一阶段其特点是权⼒力下放，包括政府开始给予企业更多的参与经营活动 和决策，并希望在资产减值、固定资产投资和营运资⾦金管理⽅方⾯面提供积极 措施。 第⼆二阶段为利润分配的变化与管理责任的发展是相关的。这是中国从计划 经济向市场经济过渡的时期。⽽而且合同责任⾮非常重要，⾸首先要保证政府收
⼊入的持续增长，又要促进管理与所有制的分离，政企分开。 第三阶段很重要是因为建⽴立现代企业制度是必要的，然后必须明确不同主 体的所有权、⾏行使权利和责任，政府与企业的分离和科学管理。在1993年， 公司法提出了公司治理框架的基础，明确了国有资产是基本要素的中国基 本经济制度，并且要向新的所有制形式开放。证券交易所和上市公司的成 长是资本市场发展的主要原因。在这⼀一时期，上市公司治理问题成为中国 资本市场问题的主要内容之⼀一。在这⼀一时期国有部门不能被认为是中国经 济的主要⼒力量。最后的阶段有2006条重要法律，为公司治理的发展奠定了 基础： 公司法和安全法。在此期间，分析了公司内部存在的问题，这⼀一时 期颁布的法律有解决这些问题。本章介绍了上个世纪的经济变化，并着重 在中国股票市场的诞⽣生和发展。同时也强调了中国共产党⼀一直以来对中国 在国内和国际上的市场有重要的影响。 第⼆二个章节主要论述了其他国家采⽤用的公司治理结构，将其与其他系统扩 ⼤大⽐比较分析后，来划分成⼏几个主要类别。本⽂文还着重论述了英美法系与欧 陆法系以及内外部治理系统的区别。中国经济的快速增长和社会的稳定密 切地关系到中国经济改⾰革的成功，解决国有企业存在的问题的是中国过渡 到市场经济的主要任务。其他国家的影响以及与国际接轨的必要性，在中 国经济及其治理体系的演变中起着⾮非常重要的作⽤用。 因为随着全球化，谈 论⼀一个国家，不考虑外部因素是不可能的，因为经济现象总是在变化，并
将所有想参与其中的参与者联系起来。 本⽂文列举并描述了那些普遍被界定为「领先国家」的公司治理模式，以证 明与中国公司治理模式的共同点和相通之处。本⽂文介绍了英国、美国、德 国等国家的公司治理制度，以了解哪些制度更能与中国制度产⽣生关联。本 章也强调，在市场全球化和各国屏障的消除后，国际背景在这个领域是多 么重要。各国之间的协调是扩⼤大市场和投资的重要的因素。公司治理制度 可以分为所有权制度和股东控股两个⽅方⾯面。所有国家的治理制度不断变化 和演变，它们受到外部环境、政治和⽴立法框架的影响，以及⽂文化和问责制。 政治对公司治理也⾮非常重要。本⽂文强调，经合组织原则需要充分利⽤用公司 治理并获益。即使没有⼀一种模式对治理系统有利，但在这个全球化的世界 ⾥里，公司可以从更多的投资者那⾥里获得融资，这⼀一点⾮非常重要。中国股票 市场的发展得益于近四⼗〸十年来的市场化经济改⾰革。⼤大多数国有企业在公司 法之后开始成为公司，然后开始在股票市场上市。在中国的股票市场是上 海证券交易所和深圳证券交易所。上市公司在中国市场和中国经济中占有 ⾮非常重要的地位。并且政府在股票市场也有相应的作⽤用。 为了了解公司治理在中国的⼯工作，有必要强调制度框架，在塑造企业⾏行为 中扮演重要⾓角⾊色的实体。最后⼀一个章节分析了中国国有企业治理现状，及 与外商直接投资的关系。然⽽而，中国系统在这意义上与国际背景有着联系， 它激励国际投资者及提⾼高吸引⼒力、提升中国经济及其在全球经济中的重要
性和相关性。投资者在中国经济繁荣中是⾮非常重要的⾓角⾊色。如果投资条件 是最优的，投资者将把钱投资在该国家, 并且该国也可能受益于这种情况。 在2001中国证券监督管理委员会提出了“ 上市公司治理准则”。 中国证券监督管理委员会（CSRC）保护上市公司和投资者， 并且为公司 的董事、监事、经理和其他⾼高级管理⼈人员制定⾏行为准则和道德标准。实际 上，“ 企业会计准则” 颁布（ASBE）以来，随着⼊入世进程的步步推进和全 球经济的⼀一体化，与国际会计接轨、会计准则国际化已是⼤大势所趋。制定 了《企业会计准则》，以提⾼高财务信息质量，符合国际财务报告准则。本 ⽂文强调中国的集中所有权是公司治理的另⼀一个显著特征。 本⽂文着重论述了在过去的40年⾥里，中国的经济体系发⽣生了巨⼤大的变化和提 升，主要来⾃自于公司和企业，这些变化对于中国如何在整个世界成为最⼤大 经济体之⼀一是重要的。可以说，中国经历了⼀一个复杂的过程，很多改⾰革以 及治理体系建设。 然⽽而，⽂文章指出，中国的公司治理仍然薄弱。现在说中 国公司治理有很好的做法还为时过早。并且中国仍然是⼀一个新兴的国家， 它仍在以形成性评价⽅方式来达到其他开发市场的发展和经验。但是可以说， 近⼏几⼗〸十年来中国经济的增长令⼈人印象深刻。这种增长也同样产⽣生在国外投 资者的投资上,并且投资者也相信⾃自⼰己的投资通过公司治理在中国会得到相 应的回报。 尽管⽆无法预测中国经济会发⽣生什么样的变化。但是中国经济仍然预计会继
续增长和发展, 不仅是因为海外投资，也因为中国⼈人民所拥有的知识和经验。 如果我们谈论公司，公司治理是最重要的事情之⼀一, 因此这个环节必须是良 好、透明的和公开的。
正如我们已经说过的,公司治理是动态的，随着经济和市场的变化⽽而变化, 可以说，中国会随着这种变化⽽而转变。
INTRODUCTION
The theme of the Corporate Governance has always been relevant for the economic stability and prosperity of a Country, because it provides the basis for good practices of management that are fundamental for the development of capital market.
According to Solomon (2007) “the system of Corporate Governance presiding in any Country is determined by a wide array of internal (domestic) factors, including corporate ownership structure, the state of the economy, the legal system, government policies, culture and history. There are also a host of external influence, such as the extent of capital inflows from abroad, the global economic climate and cross-border institutional investments”.
In the last four decades in China, the Corporate Governance (公司治理) has become a central element of economic and political discussion even thought it has been weak. From the Economic Reforms of 1978, Chinese gross domestic product has recorded a growth in average annual rate of more than 9%, and in the new millennium also the stock market has reported a notable increase. Even though the term Corporate Governance emerged the first time in the nineties, the evolution of its system started before and it is still evolving.
The dynamic system of Corporate Governance is taken into consideration in this dissertation, whose aim is to understand better how the Corporate Governance works in China, what has influence it for most and which countries have lead the transformation. The influence of the globalization of the market and the opening of the barriers between countries have influenced deeply the systems of Governance and their evolution and development.
The dissertation starts analyzing the evolution of the Corporate Governance in China that can be divided in four main stages. The first one starts in the 1978 with the Economic Reforms (改革开放) period in which there were almost only State Owned Enterprises and just a few private firms. This stage is characterized by the decentralization, as well as the Government started giving enterprises more involvement in business activities and decisions, and wanted to provide positive measure in terms of asset depreciation, fixes-asset investment and working capital management. Anyway, it
is still soon to talk about a change in dominating system, the State was still pervasive in SOEs’ management.
The second stage started in the 1984 and it is relevant for the change of distribution of the profit and the development of management responsibility. The idea that the ownership and the management could be separated started in this period, and the CPC Central Committee and the State Council issued a large number of documents to declare that the manager is a legal personality inside the company, and to define a new type of corporate leadership system. This is the period of Chinese transition from a planned-economy to a more market-oriented planned-economy and the contract responsibilities were really important, first of all to guarantee the constant grew of government revenues, and also to promote the separation between management and ownership, as well as the separation between government and corporations. This separation provided to employees a different autonomy and incentives and made enterprises’ development more sustainable (Naughton, 1995). At the end of this phase in 1988, the director of the company started to be considered an institutional figure.
The third stages, from the 1993, saw a crisis in the SOEs and this sector could not be considered the main strength of Chinese national economy. There was a need of establishing a modern enterprise system in order to enter in the new market economy, and it was necessary to define the ownership, rights and responsibilities of the different players, and the separation of government from enterprises and scientific management (Chen, 2015). In 1993, the Company Law (公司法) put the basis for Corporate Governance frameworks and defined Chinese basic economic system in which State property was a fundamental element, and the willing to open to the development of new forms of ownership. The development of a national capital market identifies the stock exchanges as the main agent, as well as the exponential growth of number of listed companies. In this period the issue of the Corporate Governance for listed companies became one of the major items in Chinese capital market question. With the joining to the World Trade Organization (WTO) in 2001, China adopted the OECD Principles of Corporate Governance. Based on the OECD Principles, in 2002 the CSRC and the National Economic and Trade Commission emitted the Code of Corporate Governance for Listed Companies.
The last phase, that started in 2003 and can be considered still actual, had two important laws of 2006 that provided the foundation for the development of Corporate Governance: the Company Law (公司法) and the Securities Law (安全法).
China unstoppable growth and social stability is strictly connected to the success of its economic reform, and the operations made for the SOEs are one of the main issues in the transition to a more market-oriented economy. The influence of the other Countries and the necessity to rest aligned with international context has been really important in the evolution of Chinese economy and its Governance system. In the world that we all know, it is impossible to talk about one Country without considering what is happening outside, because the economic phenomena are always changing, and associates all the players that want to take part of them. This is why the paper, in the second chapter, wants to provide a review of Corporate Governance starting by the literature overview and analyze the models that can be considered as the most organized or only most followed.
The systems of Corporate Governance can be divided in terms of degree of ownership, and the control of shareholders. The outsider systems, as it is pointed out in the thesis, are characterized by a disperse ownership structure. For outsider system, in this dissertation we analyze two different Countries, USA and UK that present many similarities in their Governance systems. They have independent boards and ownership, and present a well-developed stock market and a competitive market for controlling and monitoring the corporations. Furthermore, Outsider Systems also have transparent information disclosures. On the other hand, we take into consideration Germany and Japan to talk about the Insider systems that present a concentrated ownership and are really connected to banking and familiar system, and have limited information disclosures (Shleifer, Vishny, 1997).
The Governance systems in all the Countries continue changing and evolving, and they have influenced by the external environment, the political and legislative frameworks and by “culture, democratic representation and accountability, the distribution of power, and the protection of property rights and equality” (Sison, 2000, p181). Anyway, the national practices of Governance are not designed to achieve the maximal efficiency, but in ad-hoc manner with the combination of large number of forces (Shleifer, Vishny,
1997). In the dissertation it is underlined how some authors think that political processes have been the most influential players in the economic sector (Roe, 1994). The paper takes into consideration the OECD Principles that have been formulated to make a good use of Corporate Governance and to take advantages from it. Even though there is not a single model that is good for Governance system, it is really important that in this globalized world the companies could access financing from more investors. The OECD Principles work with the G20 that promotes international the financial stability. Corporate Governance and the financial stability are strictly connected.
Fan and Wong (2002), Bowen et al. (2003), Francis et al. (2005) and Koh et al. (2005) have stressed how good practices of governance influence the financial reporting. The Board of Directors is the responsible for the integrity of the financial reporting, whereas the Independent Directors are responsible of ensuring the integrity and credibility of the financial statements. The Audit Committee is a sub-category of the Board of Directors and its rule is to ensure the integrity of the financial reporting, and in order to fulfil its duties the Committee has to be independent and to provide objective overview on audit practices. Its role has been prescribed in the EU Directive (2006/43/EC).
Furthermore, in the international context all the jurisdictions have diverse ways to address related party transaction, through Corporate Law and other related regulatory frameworks. However, almost all of the Countries have adopted the International Accounting Standard (IAS24), some of them gave the flexibility to follow it, and other adopted local standards that are quite similar to IAS24. Anyway, there are some regulations that are mandatory in all countries, such as to include in the annual financial statement the transaction with directors and senior executives. In the second chapter, some provisions made for a few jurisdictions are listed. IAS 24 is called “Related Party Disclosure”, it was first drafted in 1983 and its objective is to ensure that a financial statement contains the necessary disclosures to draw attention on its financial position. The US, UK, Germany and Japan are considered to be the Countries with the best Corporate Governance system in the world. The problems of their structures have been solved by their advance market economies, however, they could not be considered solutions for the Countries that do not have good practices of Governance. Schleifer and Vishny (1997) pointed out that in less developed Countries the governance systems are basically non-existence.
To understand how the Governance practices work in China, in the paper the three model of the “leading” countries are described. The Anglo-America, German and Japanese Governance systems are the three models that could furnish examples of good practices of Governance, even though they present many differences.
Chinese stock market has developed thanks to the market-oriented economic reforms in the last forty years. Most of the SOEs after the Company Law of 1994 started their process of corporatisation and started to be listed companies in domestic or foreign stock market. In 2015, Shanghai and Shenzhen stock exchanges reached 3.159 companies, total market capitalization of 41.8 trillion RMB1. Considering that in 2015 the Chinese GDP was 69.9 trillion RMB, the stock market acted as a relevant ratio in the GDP. Therefore, listed companies have a very prominent position in Chinese economy. Even though China has had a notable development in the last decades, it is still an emerging market. Indeed, China has been under the eye of many studies and researches for the Corporate Governance and stock market, for example Tian and Estrin (2008), Bai et al (2006), Nenova (2003). Anyway, it is important to underline that the State has always had a central rule also in the control of the stock market, indeed, the listed companies’ shares have always been divided in circulating and non-circulating shares. Furthermore, China as an emerging country is still in its formative way to reach the development and experience that other developed markets have. As the Canterbury Report (1993) pointed out, the systems of Governance involve regulatory mechanisms to preserve the relationships between companies, management, their boards, the shareholders and the stakeholder. As well as to have healthy and profitable operations of business it is necessary to have stable and proper Corporate Governance.
In the third chapter, the paper provides an analysis of the Chinese Corporate Governance starting by the institutional frameworks that play important rules in the practices, dividing them in those who operate inside the company and those who operate outside. The insider players are management, shareholders meeting and the boards, whereas among the outsiders we underline legal system, institutional investors, auditing system, stock exchange and regulators (CSRC).
The most important reforms for Corporate Governance that have delineated the mechanisms and regulations were issued after a series of corporate scandals that came
to light in 2001. In that year, the CSRC issued the Code of the Corporate Governance for Listed Companies that is aimed at listed companies and addresses “the protection of investors” interests and rights, as well as the behaviour rules and moral standards for directors, supervisors, managers and other senior management members of the companies. Undoubtedly, the SOEs are the first vehicle for international investors and Chinese system of Corporate Governance is a sector in which they have active, legitimate and continuous interests. Furthermore, in 2007 the CSRC issued the “Regulations on Information Disclosure for Listed Companies” that specifically addressed all the required disclosed contents. The quality of accounting practices is controlled with a series of disclosure standards, as well as the Accounting Standards for Business Enterprises (ASBE) released by the Ministry of Finance, applicable to all the companies. The ASBE standards have been developed to improve the quality of financial information in line with the International Financial Reporting Standards (IFRS). Therefore, 48 Auditing Standards for Certified Public Accountants (CPAs) were published by the Ministry of Finance whose aim was to put China in line with International Standards. Clearly, investors want to pay more for companies that have good Governance, and the disclosure information are the best way to ensure investors about it. The quality of diverse standards used in China for the preparation of financial statements affects the quality of disclosure. Some companies follow the IAS, some the GAAP (American General Accepted Accounting Practices), and some other domestic standards such as ASBE (Tenev et al, 2002). Taking into consideration the large international accounting firms, the Chinese CPAs have less quality and competences, this is why many Chinese listed companies prefer hiring international firms and their external auditors because for overseas listed companies it is essential to raise capital internationally.
1. THE EVOLUTION OF THE CORPORATE
GOVERNANCE IN THE PEOPLE REPUBLIC OF CHINA
In the last years in The People Republic of China2, the theme of the Corporate Governance, (Gongsi zhili 公司治理), has become really central in the economic, academic and political discussions.
Chinese culture and society are based on Confucian philosophy that always looks for political, social and familiar stability in harmony (Lu, 1983).
Since the Chinese Communist Party came to power in the 1949, China has a unitary political system and the main changes inside the society has been controlled and promoted by the Party. The control and the power of the Chinese Communist Party on the State have been clearly determined on the Chinese Constitution3. The economic changes are not different: they have always been under the control of the Party. In the pre-reform era it was the State that decided which kind of production plan were right for each business enterprise. The inputs for the production, as well as bank credits, were supplied by the State and also the prices of the manufactured products were controlled by Government. It is important to underline that during this period the Government and the Chinese Communist Party stayed hidden, this is why local party secretaries had the control of the production.
At the beginning of the Economic Reforms, the Party did not pay much attention on the question of the Corporate Governance, even if it started to think about a division in the management and the property. When, in the 1978, the Communist Party decided to introduce the Economic Reforms (Gâigé kāifàng 改革开放), most of the enterprises were State-Owned Enterprises4 (guōyôu qīyè 国有企业) and there were just a few private enterprises. This is the first period in which Chinese Government started talking about the importance of the Corporate Governance as a real method to give more self-management to enterprises in order to avoid the excessive centralisation of the power in the Government’s hands (Fu, 1998). Anyway it is important to underline that under the
2 From this point on this thesis The People Republic of China will be called China.
3 Zhonghua Renmin Gongheguo Xianfa 中华人民共和国宪法, Costituzione della Repubblica Popolare
Cinese (Preambolo).
period that saw Deng Xiaoping as President, China did not make great changes in this sense, but the very first time Corporate Governance was discussed in China was in 1997 by the Research and Development Centre of the Shanghai Stock Exchange (SEE). The changes and evolutions in the economic, industrial and financial systems in China in the last century have influenced all the situations that China lives now.
1.1 The Economic Reforms in China
Immediately after the born of the People Republic of China, in 1949, precisely in October, the State established an economic system based on the Soviet standard, with a planned economy that stayed stable for three decades. Soviet accounting practices have had a strong and significant impact on the Chinese accounting system (Graham and Li, 1997). The beginning of an economy opened to the outside world started after the Cultural Revolution (1966-1977) brought by Deng Xiaoping who supported the idea of changing the planned economy to a market-oriented economy. In the first part of the 80’s, the more important political reform was the actualization of the Dual-Track System (Shuāngguǐzhì 双轨制) that permitted to exchange producer goods at two different prices: a state-set price, for centrally rationed supplies, and a higher free-market price. This was done to ensure the stability of the economy, for a gradual opening to markets and to provide incentives to the SOEs that were allowed to sell the products at market prices after the planned target had been decided (Wu et al., 1987). This situation did not change until the beginning of the 1990 when most of the prices started being fixed by the market and the ones decided by the State started to disappear (Qian et al., 2000).
In 1992, the 14th National Congress of the Communist Party of China made a strategic
decision to establish a socialistic market economy that had to be regulated and guaranteed by a complete legal regime. This is important for two main reasons: the first one is that the central power maintained all the strategic decisions; the second one is the progressive use of the capitalistic mechanism of production and financial systems, to obtain a quick development of the exportations and to improve people’s revenues. At the beginning of the Reforms in China the industrial system was totally controlled by the State and the aim was the maximization of the production and not just focused on
the profit, whereas the financial system was under the control of The People Bank of China (Zhōnguó Rénmín Yínháng 中国人民银行) that had the rule of central bank and commercial banking institution. In the recent period, China had suffered enormous problems such as the demographic pressure, the lack of human and natural resources and the scarcity of efficient industrial and financial systems (Qian, 1999). In 1978, before the beginning of the reforms, 250 million of Chinese lived in total poverty, result that changed after the adoption of the reforms, arriving at just 14.8 million in 2007 (GRRB Gong Ren Ri Bao 工人日报 “Worker Daily”, 2008).
The economic transition that China has faced in the last four decades has been determined by important factors that are necessary to underline. First of all, the transition has been made gradually and in experimental way just in a few parts of the Country and adopted just after in national scale. Secondly, the process has been directed by the State a not with a complete liberalisation of the markets; even though the State has reduced its weight in the national economic, it is still relevant its participation in the key industrial sectors, such as telecommunications, transports, oil, bank etc. In addiction, the formalization of the privatization and the rights of private property have not been central factors of this process of transition in the first three decades. Just recently, in the 2007 the rights of private property have been recognised by the Real Right Law of The People Republic of China5. Lastly, this process is happening without a democratization of the Country, and it is easy to presume that this one-party system will last still for some time.
1.1.2. The Industrial System in China
The first big change in the industrial structure in China has been the passage from a system based on state-owned enterprises that received subsidies and funds by the State, which obtained all the profits, to a system that gave the enterprises the opportunity to hold the profits, with the regulation to pay the right taxes. This implicated that enterprises had to confide in the banks to finance their projects, reason why the connection between banks and enterprises had a big change. Indeed, before this system
5 Zhonghua Renmin Gongheguo Wuquan fa 中华人民共和国无权法( Legge sui Diritti Reali) , Article
came into effect, the enterprises did not have interest in having a good governance structure, because of the absence of subsidies. Initially, prices were completely fixed and controlled by the State and productive choices were focused on the produced quantity and not on the efficiency of the enterprise. Moreover, the policy of the autarky that characterized Chinese economy had the aim to satisfy the domestic demand not using importations, but just domestic resources. An industrial system set up with this method was efficient to maximize the production, but implicated that the production was insufficient and lacking for the opening on the international markets after the 1978. Therefore, the Chinese Government decided to trust in the bank system for the position of the credits, to modernize the management and the financing of the enterprises and to encourage them toward efficiency and profits. Because of the importance of the banks in this decision, as well as they preferred some kind of enterprises instead of others, the State had to face with a contraposition between the industrial and the bank systems’ interests and had to make profitable that enterprises that were completely state-owned. The increased of the production of the following period was determined by the improvement of the managing system of the enterprises, but it was still not enough to modify the well-consolidated inefficiency of the Chinese system. It was evident that there was the need of an intervention on the official regulations of the enterprises management. An intervention in this sense was the issue of the Company Law (Gongsi
fa 公司法) in 19936, and the recognition of the compatibility between the socialism and
the private property, the two main points of the Chinese industrial system reform. The Company Law was formulated to regulate the organization and the functioning of the societies, to safeguard the legitimate rights and interests of enterprises, stockholders and creditors, to maintain the socio-economic order and to develop a socialist market economy7.
The opening of the private property laid the foundations of the growing of private enterprises and the privatization of many SOEs. An important change to underline is the Government decision in 2003 to focus its attention only on the 196 major SOEs, with assets higher than 69000 billion RMB, with the aim of creating approximately thirty big groups with international relevance, towards mergers, acquisitions and sales on markets.
6 Zhonghua Renmin Gongheguo Gongsi Fa中华人民共和国公司法 Companies Law of the People’s
Republic of China).
In 2005, these enterprises were reduced to 172. They are monitored by The State-Owned Assets Supervision and Administration Commission of the State Council (SASAC) which is a special commission under the State Council. This is made to support the enterprises on their core competences, and to limit the risks of non-profitable diversifications. Indeed, SASAC is responsible for managing the SOEs, as well as appointing top executives and approving any acquisitions or mergers, or sales of stock or assets. It is also responsible to draft laws related to SOEs, as well as drafting
laws related to state-owned enterprises8.
An important event to underline is the Chinese entrance into the World Trade Organization (WTO), which was essential for the Chinese Government to put more efforts in the modernization of the industrial system that has clearly improved, although it is necessary an ulterior strengthening of the private system, by liberalization and institutional reforms.
The number of SOEs has decreased in the last years, whereas the number of the private enterprises and the Foreign Investment Enterprises (FIE) has increased. The growing of
many FIE has given birth to many Joint Ventures in China (Hezi qiye 合资企业) ,
preferable respect to the Wholly Foreign Owned Enterprises (WFOE) (Waishang qiye
外商企业).
1.1.3. The Financial System in China
An efficient financial system is necessary for a correct positioning of resources, as well as an industrial reform is essential for maintaining a stable financial system. Financial systems can be organized in different ways that are not the same in terms of the role of the Government, the importance of banks and other financial intermediaries compared to stock markets, the degree of financial influence in the economy, and other differences. The optimal financial system depends on many factors, such as its stage of development, its particular social values and its political system. China’s financial system has managed for several decades to perform good enough for supporting the very rapid economic growth of that nation, but this fast growth is the reason why it is
8In 2017, its companies had a combined revenue of more than 23.4 trillion yuan and an estimated stock
hard to analyze. Anyway, the leading rule of the Chinese Communist Party is evident in all sectors of economy, especially banking (Douglas et al., 2013). In China, the China Securities Regulatory Commission (CBRC) regulates all the banks, and securities and financial markets are controlled by the China Securities Regulatory Commission (CSRC). To manage monetary policy and for regulatory responsibilities, an important rule is led the People’s Bank of China’s (PBOC). This Bank has to draft regulatory bills, to regulate systemic risks and to manage financial stability. It is also necessary to set limits on deposit interest rates and lending interest rates. Moreover, the PBOC controls the State Administration of Foreign Exchange, that manages the exchange rate. However, both the exchange rate and the interest rate limits are defined at higher level by the State Council, which is the highest government body (Douglas et al., 2013). Accounting standards in China are set by the Ministry of Finance decides what specific disclosures companies with publicly traded securities must make (the last disclosure standard was drafted in 2007).
1.1.4. The Banking System in China
The banking sector has had a rapid development since the onset of the reforms. In 1978, indeed, the PBOC had the function of the Central Bank and was the only commercial bank, so it was the only structure that had two major responsibilities. After the decision of abandoning the monopolistic structure, a system based on specialized State-Owned Banks (SOB) was set up. It was composed by the four banks that are also known as the Big Four: the People’s Bank of China (PBOC, zhongguo renmin yinhang 中国人民银 行) that controlled the industry and trade market, the Bank of China (BOC, Zhongguo
yinhang 中国银行) for the monetary transactions, the China Construction Bank (CCB, zhongguo jianshe yinhang 中国建设银行) for the real estate investments and the
Agricultural Bank of China (ABC, zhongguo nongye yinhang 中国农业银行) for the rural credit. In the 1984, there was a big step forward when the system changed from a traditional system to a two-tier system with the establishment of the Industrial and Commercial Bank of China (ICBC). This means that the monetary policies and the credit activities were divided and the PBOC became a central bank with the aim of monitoring the banking system and leading the monetary policies.
It is important to underline the draft of two important banking laws that were put into effect in 1995. The first one is the Central Bank Law (Zhongyang yinhang fa 中央银行 法) that confirmed the power of the PBOC as a central bank and reduced local governments’ power on the decision of credit’s allocations. The second one is the China’s Commercial Bank Law (Shangye yinhang fa 商业银行法) that officially defined the SOB as commercial banks, putting them in the direction of commercial activities based on market principles instead of on loans. After the official Chinese admission into the WTO, many reforms in the banking systems were put in place. In 2003, the China Banking Regulatory Commission (CBRC) was established with the responsibility of monitoring and supervising banking system after the opening to the foreign investors9.
1.1.5. The Development of the Stock Market in China
As well as the other elements in the economic sector the development of the stock market happened under the control of the State. Before the economic reforms in 1978, enterprises received the necessary capitals from the central and local governments, this means that there were no obligation for a stock market. The origin of the stock market in China starts from the Joint-Stock Township Enterprises that were directed by farmers in the rural areas. At the beginning of the 80s, this phenomenon started developing in the rural areas and some enterprises had the permission to experience shareholding. The majority of the stocks were issued for enterprises’ employees or for residents, and were similar to bonds because guaranteed fixed dividends, were sold equally and were repaid at the expiry. This is basically how the stock market found its place in China. In 1990, the government re-opened the Shanghai Stock Exchange, after a period of inactivity to which followed the opening of another stock exchange in Shenzhen with the aim of improving the performance of the enterprises that had belonged to the State and extending the external financing channels.
Afterwards, the stocks exchanged by residents or national institutions denominated in RMB were defined A-Share, whereas ones by foreign investments emitted into internal
9 The opening to the foreign investors were initially allowed only into the Joint Stock Commercial Banks
market by Chinese enterprises were called B-Share, these were denominated in RMB too, but also undersigned and exchanged in US dollars or HK dollars.
1.2. The importance of the Corporate Governance in China
In the last years, the stock market has had a remarkable development, but this has happened in contrast with the Chinese economic development, if it is taken into consideration just the nominal GDP. Even if the national economy has recorded a considerable annual increase of at least 9% from the 1990, the stock exchange capitalization has suffered a period of strong instability. Although many listed companies have been eliminated and the emission of operations has been redoubled, in particularly from 2000 and 2005, the capitalization of the market has decreased because of the collapse of the stock prices. For individuating the reason of this collapse, the authorities of market regulation have researched in the lack of Corporate Governance practices in China. Precisely, some global scandals occurred and disturbed investors, undermining their trust in Chinese market.
There are two specific cases that illustrate this question. The first one is the case of the Yinguangxia Company that is considered so far the most serious fraudulent disclosure case in the Chinese securities history. In 2000, after it had been disclosed that its share prices had an increase of 440% the Chinese Securities Regulatory Commission formed an investigation group. In 2001, it found out that Yinguangxia Company had forged a profit of CNY 750 million during the period from 1999 to 2000 (Fu, 2010). The second case is about the Sanju Pharma that created fake transactions to obtain money from the banks with adequately declared operations to the correlated part, included the conductor stakeholder (Chen et al., 2005). The CSRC’s inquiry has disclosed that Sanju Pharma had stolen more then CNY 2,5 billion, the 96% of the Society’s capital10.
Even if the concept of the Corporate Governance has been introduced from the Nineties, it has not created many interests since the depreciation of the markets occurred from the 2000 to the 2005. From that moment both the Chinese Government and the regulation authorities understood the importance of the good practice of Corporate Governance.
10 Zhongguo zhengquan jingdu guanli weiyuanhui 中国证券监督管理委员会(CSRC, China Securities
Regulatory Commission), Announcement of Reprimanding Sanju Pharma and Concerned Individuals, 2001.
The Corporate Governance has a relevant importance for some different fields. One of them is the social stability, strictly connected to the number of stockholders and institutional investors that manage behalf of Chinese citizens. Secondly, it is really relevant for the capital competition at international level; it is evident that to integrate to the global economic, China had to adapt to regulations and norms dictated by developed Countries that had been globally introduced in advance. This is why, to make international investors to hold their shares, Chinese listed companies have to adapt themselves to the practices of international and global investors. Even if China had extraordinary achievements and success over the last forty years, it is still in its interest to make its Corporate Governance practice suitable for foreign investors. Furthermore, the Chinese transaction to a socialist market economy has not finished yet, and the success of the following transactions, as well as stock index futures and corporate bond market, will depend on the success of the stock market (Tang, Linowsky, 2011).
1.3. The Evolution of the Corporate Governance Practices in SOEs
In order to understand how the Corporate Governance evolved in China and to trace its roots, and since the majority of listed firms of stock market has their backgrounds, it is important to look how Chinese SOEs’ developed.
In the planned economy before 1978, state ownership was considered the sole legal form of enterprises11. This allowed state planner to immobilize human and financial resources and gave them justification to fix the production and distribution demands. The State not only had the property rights of, but also the control of the SOE’s officials who were the possessors of the managerial power. With this method, the SOEs were the only source of income in State’s coffers and for their employees that lived with the salaries earned at the SOEs, this served as an organizer for economic resources and activities (Schipani, Liu, 2002). Furthermore, SOEs had a real social importance not only in the production units, but also for the social security. Chinese used to call them “iron rice bowl” because they provided salary, medical treatment, housing and pension.
11 Zhonghua Renmin Gongheguo Gongsi Fa中华人民共和国公司法 _(Companies Law of the People’s
The Central Government, by the abolishing of the national economy development during the ten years of the Cultural Revolution, learned a bitter lesson. Therefore, seen the economic success in the developed countries, it had the intention of increasing the productivity and raising living standards. The idea, by 1978, was to reform its economic model to a more competitive one.
Depending on the major policies taken by the Central Government to reform SOEs and their management, it is important to identify four different stages.
1.3.1 The First Stage (1978-1983)
The experiment of the SOE reform had started even before the execution of the XXI Chinese Communist Party Congress, when in the autumn of the 1978, in the province of Sichuan the local Government selected six SOEs to be the first ones to undertake an experiment according to “expanding enterprise autonomy and introducing profit retention” (Qian 1999, p. 8). The following year, in the Sichuan Province the number of SOEs under experimentation had an increase to about 100 enterprises. The Local Government gave them the autonomy to produce and sell goods to external free market (this was established as the Government allowed farmers to sell their surplus products), and the opportunity to retain some of the profits if they had fulfilled the planned quotas. The characterizing element of this stage was given by the decentralization. In 1979, the Central Government issued a set of rules and regulations whose aim was to reform the enterprises’ management system. The rules had the objective of adjusting the relationship between the enterprises and the state. They wanted to gave the enterprises’ managers more involvement in business decisions and activities, and to re-establish the administrative authority over the SOEs, directed by the state until this moment, by using a management model that were expected a supplementation of economic incentives for the direct State control. Indeed, to expand SOEs incentives for better business achievements, the State provided positive measures in terms of asset depreciation, fixed-asset investment and working capital management. In 1980, more then a half of enterprises were involved in the experiments and obtained a strong autonomy in the production planning, in purchasing materials, in hiring employees, sales and in the use of retained profits. A positive effect on SOEs performance had its launch after these
incentives. In 1979, compared to the previous year, the profit of all the SOEs delivered to the State grew by 10.1%, and the deficit of 1 billion RMB was replaced by a surplus of 13.5. billion RMB. Moreover, the income brought by the SOEs had an increase of the 7.5% compared to 1978 (Wang 2006, p.10). In 1981, some pilot programmes were introduced to increase the economic independence of the SOEs and their success was summarized in the SOE Management Responsibility System and fixed by the State as a objective of SOE management mechanism reform.
However, even if these practices were a cautious testing for SOEs profit-orientation system, it still was too soon for them to change the dominating planned system. The priority was oriented to the planned production quotas so far. The profit retention was just enjoyed by those that could complete enterprises’ production plans and mobilize surplus human and financial resources. The State was still pervasive in SOEs’ operations, it chose officials to manage SOEs operations, evaluated production and distribution demands, and was the responsible of forming and monitoring the realization of the production scheme for the SOEs. Furthermore, the State provided material resources and funds to finance SOEs’ operations, it supplied all SOEs with the input resources and, according to established plans, distributed the output. In this period, the SEOs’ governance practices were not that different to those in the planned system. 1.3.2. The Second Stage (1984-1992)
The most important features of the second phase was the change of distribution of the SOEs’ profit and the development of the management responsibility system. Before the reform, the State claimed all the SOEs’ profit, and from this point in advance the profits come from large and medium-sized enterprises were taxed, and the after-tax profit were divided between the State and the enterprises, putting in place the SOE Management Accountability Mechanism. In 1984, it came out the idea that the ownership and the management of the SOEs could be separated, and, in 1986, a large number of documents, as well as the Terms of Reference for Manager of State-Owned Industrial Enterprise, were issued by the CPC Central Committee and the State Council. These documents declared that the manager is a legal personality inside the company and stipulated a new type of corporate leadership system that gave the manager a complete
responsibility. Furthermore, it was stipulated that the Party had a role of supervision and guarantee above the enterprises, whereas employees could run in a democratic way. In the 1987, the main goal for the SOEs’ reform started to be the transformation of the enterprises’ operational mechanism. According to this topic and on the idea that the responsibility of ownership and management could be divided, the State initiated a reform for the SOEs’ business operation models and set up a model based on contracts. In a period of economic transition, from a planned-economy system to a market-economy system, the contract responsibility system was really relevant to guarantee the constant grew of government revenue, to promote the separation of the ownership and management structures, and of course the separation of the enterprises from the government, providing SOEs’ employees with more autonomy and greater incentives, and in this way make the enterprises’ improvement more sustainable (Naughton, 1995). Unfortunately, this system demonstrated to have also some weaknesses, and did not avoid the behaviours oriented to short-term performance. The contracts often had basis that were arbitrarily decided and they were neither fair nor objective. When the enterprises demonstrated to be successful and profitable the contractors shared the gains, but when the enterprises did not succeed and incurred in losses they were not personally responsible. This system could not find a satisfactory solution to separate completely the role of the government from enterprises.
In 1992, the Regulation on the Transformation of Operational Mechanism of Industrial Enterprises Owned by the Whole People were stipulated by the State Council that delegated 14 independent powers of operation to the enterprises and, in this way, accelerated the passage to a market-oriented economy. This is the stage in which the State started to reduce its control on enterprises and to decrease its rule on the Governance, moving from being the owner, the manager, the planner, the supervisor and the financier to be the owner, planner and financier. The State established big groups of enterprises that had to connect the SOEs at horizontal and vertical level. With this policy, the State wanted to promote a more rational structure for SOEs’ system, to reach a more technological development, and to create conglomeration of these groups that had inner financings. Therefore, a new level in the structure of governance between the State and the involved enterprises was created.
With the Law of the People Republic of China on Enterprises Owned by the Whole People, stipulated in 1988, the enterprise’s director started to be considered a juridical entity and he operated as a legal representative in addition to his power in the decision for financing the company. This is the first time that in China inside the SOEs system the director has a central role inside the enterprise. This law also introduces some measures to facilitate the management of enterprises and established a Management Committee, whose the aim was to assist the director for important decisions.
1.3.3. The Third Stage (1993-2003)
Even if the State sector since the 1978, with the beginning of the reform, made notable efforts, it was still evident that it was uncompetitive in comparison with the private sector that had a great expansion in the first 15 years of Chinese reforms and opening-up policies. Since the managements obtained more power in making decisions, the SOEs suffered a steady increased in losses. From the 1993, although most of the SOEs were still open, the state sector could not be considered the main strength of the Chinese national economy. The share of the state sector in the industrial output was about to 78% and descended to 43% in 1993 (Qian 1999, p. 15). Indeed, in this phase the core of the SOEs’ reform was the establishment of a modern enterprise system. There was the need of an establishment of a modern enterprise system to enter in the market economy, and it was necessary to define ownership, rights and responsibilities, and features the separation of government from enterprises and scientific management (Chen, 2015). During the XIV Party Congress of 1993, it was formulated the Decision on Issues Concerning the Establishment of a Socialist Market Economic Structure that clearly defined reforms’ objectives. This was about a system based on rule, with foreign exchange rate, tax rates and accounting rules unified for all enterprises without considering the ownership. It focused on property rights and ownership system, with the intention of transforming SOEs, and on establishing institutions to support the market, such as centralized monetary system, formal fiscal federalism, social safety net (Qian, 1999).
The Central Committee identified that for the enterprise reform one of the key was the clarification of the property rights and made a declaration:
“Large and medium-sized State-owned enterprises are the mainstay of the national economy; ... [for them,] it is useful to experiment with the corporate system ... As for the small State-owned enterprises, the management of some can be contracted out or leased; others can be shifted to the partnership system in the form of stock sharing, or sold to collectives and individuals12”.
Compared to the first and the second phases, this one developed in a different way and on different aspects. Firstly, it had the intention to make SOEs modern enterprises with “clear property right, clarified rights and responsibilities, separation of enterprises from the government, and scientific management (Zhongguo gongchandang 中国共产党 - CPC , The Communist Party of China) .
In addiction, it was implied the privatization of the small enterprises:
“With regard to small SOEs, the management of some can be contracted out or leased; others can be shifted to the partnership system in the form of stock sharing or sold to collectives and individuals13”.
Lastly, the Decision declared its support for the development of a financial market, sustaining the issuance and listing of shares and the willing of enlarging this scale in a gradual way14.
In 1993, the Company Law (Zhonghua Renmin Gongheguo Gongsi Fa中华人民 共和国公司法) was launched in China as a concrete establishment for enterprises based on a modern system and this laid the basis for Corporate Governance framework. China defined its basic economic system in which state property was the fundamental element, but opened to the development of new forms of ownership. According to this definition, there are two main efforts in which there
12 Decision of the CPC Central Committee on Issued Concerning the Establishment of a Socialist Market
Economic Structure, China Daily, Supplement, November 17, 1993.
13 Idem. 14 Idem.
was more concentration. On the first hand, the direction was to make SOEs become legal entities that were responsible for their own business operations, development, profitability and risks. Some enterprises were restructured as Limited Liability Companies (有限责任公司) or limited joint stock companies ( 股份有限公司), and it was outlined the Corporate Governance structure with the draft of the articles, with shareholder meetings and board of directors, the establishment of supervisory board and appointment of senior management. On the other hand, some of the obstacles that limited the development of the non-state sector were removed and some of the enterprises belonging to this sector steadily started to grow.
From the beginning of the ‘90s, it occurred the gradual development of a national capital market, in which stock exchanges acted as the main agent, and also the exponential growth of the number of listed companies. Most of them were restructured SOEs, the ones that were not been restructured maintained the old management mechanism and their control on their shares. At the same time, as well as the number of the listed companies did not stop growing, there were many problems in the governance practices, and in this period the issue of the Corporate Governance for listed companies became one of the major items in Chinese capital market question. In particularly, the Committee of the Party from 1999 started to adopt stronger policies for the SOEs. Between them, it is important to underline the implementation of the Party policy of “sizing on the big and letting the small go” (zhuada fangxiao 抓大放小). The state had to provide beneficial policies for the enterprises such as self-managing right of import and export, technological renovation, bank loans, and restructuring of enterprises. Some of the SOEs were selected by the Provincial Government to be under experimentation. The new policy of “sizing on the big and letting the small go” had to solve also the problem of the small enterprises, which had poor technological equipment and low productivity. They were to be invigorated and converted in new firms by way of reorganization, association, leasing, contract, merger, share-holding cooperatives and sell-off (Guo, 2013).
From 2001, with the joining to the World Trade Organization (WTO), China adopted the OECD Principles of Corporate Governance and undertook to improve
Corporate Governance structure in Chinese listed companies. In 2002, the CSRC (China Securities Regulatory Commission) and the National Economic and Trade Commission emitted the Code of Corporate Governance of Listed Companies that is based on the OECD Principles and it particularly focused on the issues of listed companies in China. This document defined the fundamental principles of Governance practices and the way to reach protection for investors. Furthermore, it underlined how directors, managers, supervisors and all the other executives had to behave and their basic code of professional ethics and conduct.
1.3.4. The Fourth Stage (2003- Today)
Even if the actual system of the Chinese Corporate Governance will be covered in the third chapter of this dissertation, it is important to underline some recent but still historical circumstances that brought Chinese system to this point.
Some issues related to the good practices of the Governance started to emerge from the first years of the millennium, but thanks to the collaboration of the regulation authorities, such as the Chinese Security Regulatory Commission, the level of the Chinese listed companies has constantly increased. In 2004, the State Council stipulated a series of Opinions to clarify the strategic importance for the national economic development of capital markets. In addition, it classified a way to solve some long-lasting problems on this argument. The CSRC, in 2005, issued a reform whose aim was to solve the problem of non-tradability of some shares held by the shareholder of a company, that were owned before the company became public. Thanks to its success, it was possible to obtain the equality in the negotiation rights and dividing interests and prices between state-owned, institutional and tradable shares. Furthermore, it activated parity to the trading of shares and earning on shares between all categories of shareholders. Market mechanism constituted the principle for common interests among all shareholders’ categories and it valued all the shares categories.
There are two main laws that provided a foundation for the development of the Corporate Governance framework in China: the Company Law (Zhonghua
(Zhonghua Renmin Gongheguo Zhengquanfa 中华人民共和国证券法 ), both introduced in 2006.
The Company Law enhanced Governance mechanism to protect shareholders rights and public interests, it underlined the legal obligations and responsibilities of those in control of the company, such as the directors, senior management and supervisors. Furthermore, it improved companies’ financing, their accounting system, mergers, divisions and liquidation.
The Securities Law, indeed, had the aim of improving the systems that discipline the issuance, registration, trading and settlement of securities and establish capital market architecture. With this law, the supervision for the companies was improved, and it made issuance examination more transparent, and introduced a system to recommend or sponsor a listing. It also increased responsibilities and rules for obligation and strengthened investor protection, with a particular attention on minority investors, and established a fund for the protection of them, also with a system of civil responsibility to compensate their damages.
Consequently, corporatisation reforms for large Central Government was carried out by the state-owned Assets and Supervision and Administration Commission of the State Council and it established of boards of directors in relation with the Company Law and according to the OECD principles. Furthermore, the CSRC established regulations to impose a strict limitation of listed-company fund misappropriation, to solve a problem that affected the development of the listed-companies. It occurred than the actualization of programmes based on “shares for debt” with the local Government cooperation. This was made to prevent problems with the issue of debt repayment arrears. Once the old arrears would be repaid, it could intervene a mechanism for the prevention of new debt repayment arrears. In 2007, a three years campaign was launched by the CSRC whose aim was to strengthen the Corporate Governance system of listed companies. Societies examined deeply the inner problems on the issue of the Governance practices, trying to correct them, by obtaining more awareness in operations and strengthening their Corporate Governance level.
In this chapter, it is discussed how the process to build a functioning Corporate Governance system in China has been hard e long over the past forty years, as
well as how the Central Government and the Party have a influenced and continue to participate in SOEs Governance mechanism.
In the second chapter, it will be covered the question of the Corporate Governance adopted in other countries and a comparative analysis between them, and it will be make evidence of point of contact and similarities with the Chinese standard.
Phases of Evolution of Governance system in China
Figure 1.1. Source: elaborated by the author 1978-1983 Dominance of State-Owned Enterprises 1984-1992 Separation of Government and Enterprise 1993-2003 Experimentation in the Modern Enterprise structure 2004-today Continued Pursuit on Corporate Governance
