Abstract

http://ssrn.com/abstract=424885
 
 

References (38)



 
 

Citations (21)



 


 



Corporate Governance in China: An Overview


Donald C. Clarke


George Washington University Law School

September 19, 2003

Donald C. Clarke, "Corporate Governance in China: An Overview", China Economic Review, vol. 14, 2003, pp. 494-507

Abstract:     
NOTE: A Chinese translation of this paper is available at http://ssrn.com/abstract=1429722.

Corporate governance (gongsi zhili) is a concept whose time seems definitely to have come in China. Chinese definitions of corporate governance in the abstract tend to cover the system regulating relationships among all parties with interests in a business organization, usually spelling out shareholders as a particularly important group. But Chinese corporate governance discourse in practice focuses almost exclusively on agency problems, and within only two types of firms: state-owned enterprises (SOEs), particularly after their transformation into one of the corporate forms provided for under the Company Law, and listed companies, which must be companies limited by shares (CLS) under the Company Law. This article discusses Chinese corporate governance in this narrow sense, and attempts to explain some perplexing features of its discourse, laws, and institutions (abbreviated hereinafter as "corporate governance laws and institutions" or CGLI).

A fundamental dilemma of Chinese CGLI stems from the state policy of maintaining a full or controlling ownership interest in enterprises in several sectors. The state wants the enterprises it owns to be run efficiently, but not solely for the purpose of wealth maximization. A necessary element of state control of an enterprise is the use of that control for purposes such as the maintenance of urban employment levels, direct control over sensitive industries, or politically-motivated job placement.

This in turn creates several problems. First, many of these goals are not easily measured and there is no obvious way of balancing them one against the other. This creates monitoring difficulties. Second, the policy of continued state involvement sets up a conflict of interest between the state as controlling shareholder and other shareholders. In using its control for purposes other than value maximization, the state exploits minority shareholders who have no other way to benefit from their investment.

The major theme of this article is that the state wants to make SOEs operate more efficiently by subjecting them to a new and different set of rules - the rules of organization under the "modern enterprise system". Policymakers then find, however, that they must change and adjust the rules to take account of continuing state ownership. Moreover, the need to provide for the special circumstances of state-sector enterprises ends up hijacking the entire Company Law, so that instead of state-sector enterprises being made more efficient by being forced to follow the rules for private-sector enterprises (the original ambition), potential private-sector enterprises are hamstrung by having to follow rules that make sense only in a heavily state-invested economy.

Number of Pages in PDF File: 14

Keywords: China, People's Republic of China, Chinese law, corporate governance, company law

JEL Classification: K22, P12, P30, P31

Accepted Paper Series





Download This Paper

Date posted: August 14, 2003 ; Last revised: December 5, 2014

Suggested Citation

Clarke, Donald C., Corporate Governance in China: An Overview (September 19, 2003). Donald C. Clarke, "Corporate Governance in China: An Overview", China Economic Review, vol. 14, 2003, pp. 494-507. Available at SSRN: http://ssrn.com/abstract=424885 or http://dx.doi.org/10.2139/ssrn.424885

Contact Information

Donald C. Clarke (Contact Author)
George Washington University Law School ( email )
2000 H Street, N.W.
Washington, DC 20052
United States
202-994-2830 (Phone)
202-318-4479 (Fax)
HOME PAGE: http://docs.law.gwu.edu/facweb/dclarke/
Feedback to SSRN


Paper statistics
Abstract Views: 25,714
Downloads: 7,458
Download Rank: 352
References:  38
Citations:  21

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.234 seconds