Non-Tradable Share Reform in China: Marching Towards the Berle and Means Corporation?

Abstract

In the late 1970s, China initiated gaige kaifang, the twin strategies of reform and opening-up the economy. In the following three decades, the Chinese leaders have been very cautious during China’s transition from a planned economy to a market economy. In every reform move, reformers have arguably taken a “one big leap forward but one step backward” approach. State-owned enterprises were successfully transformed into joint stock companies and two stock exchanges were established in the early 1990s. At the same time, a split share structure was created. The majority of shares have been non-tradable. In 2005, to address the problems caused by non-tradable shares, a reform was introduced to unwind these shares. However, at the same time, the government expressly said that “making all shares tradable does not mean selling out all shares”. The reform became merely a technical change. Apart from the state’s reluctance, the rise of dispersed ownership in China is now a possibility, rather than legally impossible. In the aftermath of the credit crisis, is moving along the Anglo-American path making any sense? Or should China remain where it is? In summary, this paper intends to provide readers with an overview of the past, present and future of the ownership structure problem in China.

Keywords: China, socialist state ownership, corporate governance, split share structure, non-tradable shares

JEL Classification: K22, N25, 016, P37