Corporate Governance

Corporate Governance in China 's Listed Corporations

Submitted by : Jian Li

Graduate Department of Faculty of Law

University of Toronto

With the process of transition from the planned economy to the market economy China has witnessed a remarkable growth in the corporate form of business organizations . This has made the role of corporate governance prominent in the maintenance of a stable economy . The development and functioning of the corporate governance measures largely depended on the frameworks of the company law legislation and the reforms brought therein

Corporate Governance in

Transitional China

The early 1950s witnessed the expropriation of all private firms in China by the government with the intention of reviving the `socialist reconstruction ' of the country . During the whole period of three decades when the China Communist Party 's position was prominent in the social and economic scenario of China the corporate governance was given a back seat only . Also the State and the collective property including corporate shareholder 's rights were regarded as the state 's political and economic backbone and protected by criminal law and administrative law

The absence of private property and private firms did not give way for the evolution of any process for the protection of shareholders ' rights by the civil and commercial laws . However the changes in the economic outlook of the country have brought even greater changes in the corporate governance perspective . Especially after the government 's efforts to privatise the economy the proportion of the private shareholders in the ownership structures of the companies have increased tremendously and this has made the protection of the shareholders rights significant in the Chinese commercial law reforms

Economic Transition and Shareholder Protection

In China the process of privatization of state owned enterprises had taken more than a decade from 1977 . There was no intention of the government to initiate any action for the faster development of a market economy . The original idea of the economic reforms was to perfect the working of the existing public ownership based planned economy and the reforms on their own lead to a pronounced market economy . In the process the government had to privatize many of the state owned enterprises by changing the shareholder base with more individuals owning the shares in the state owned enterprises Another situation that led to more privatization is the action of the state owned enterprises in using up the loans provided by the banks and put them to the level of bankruptcy Emerging private foreign firm 's competition and insider 's expropriation leave State owned enterprises in insolvency China government had to consider privatizing these troubled state owned enterprises in 1994

Given the Chinese political environment and the concerns about potential protests of the workers , the large state owned enterprises were still retained by the Chinese government and most of the small and medium sized state owned enterprises had been privatized in China (Zhao It needs to be mentioned that the privatization efforts of the Chinese government did not get the support of...