Corporate Governance of Business Organizations in the People's Republic of China: The Legal Framework After the Revision of the Company Law in 2005

China: Corporate governance of business organizations, in: Klaus J. Hopt, Andreas M. Fleckner (Hg.), Comparative Corporate Governance: A Functional and International Analysis, Cambridge University Press, Cambridge 2013, 156 - 207

48 Pages Posted: 22 Oct 2010 Last revised: 7 Aug 2013

See all articles by Knut Benjamin Pissler

Knut Benjamin Pissler

Max Planck Institute for Comparative and International Private Law

Junhai Liu

Renmin University of China - Law School,

Date Written: October 22, 2010

Abstract

Corporate governance (Chinese: 公司治理, gongsi zhili) has become a hot topic in China in the last years. In 1994, the first Company Law came into effect, which was subsequently amended in 1999, 2004 and (with major changes with regard to corporate governance issues) in 2005 (Company Law). The paper, which was part of the Country Reports on Corporate Governance delivered to the 18th International Congress of Comparative Law of the International Academy of Comparative Law in Washington DC in 2010 (July 25 to 31), gives a comprehensive overview on the legal regime of corporate governance issues in the Peoples' Republic of China. Like the other Country Reports the paper focuses on internal and external corporate governance and enforcement with regard to limited liability companies and companies limited by shares.

The authors conclude that Chinese company law is characterized by a legal dualism with a separate set of regulations for Chinese invested companies without much (non-state) minority shareholder protection on the one hand and Chinese-foreign joint ventures and wholly foreign owned enterprises with strong (state) minority shareholder protection on the other hand. The consequence is a combination in internal corporate governance of the one-tier and the second tier system with a board of supervisors in companies limited by shares and limited liability companies borrowed from continental European legal systems like Germany and independent directors in the board of directors in listed companies limited by shares following the Anglo-American approach.

Regarding external corporate governance the authors conclude that it suffers from an immature market for acquisitions. The introduction of partial offers with the amendment of the Securities Law in 2005 might accelerate the increase of control shifts and might result in a more active takeover market, but it clearly disregards the protection of minority shareholder protection as minority shareholders can only share a part of the control premiums and their right to exit is curtailed. With regard to enforcement the authors find that in China it relies largely on state administrative agencies like the China Securities Regulatory Commission, the State Administration of Industry and Commerce and the two Chinese stock exchanges in Shanghai and Shenzhen. Private enforcement of rights granted to market participants in China is claimed to be doubtful, at least when it comes to shareholders.

Keywords: Corporate governance, company law, internal and external corporate governance, takeover market, law enforcement, shareholder protection

Suggested Citation

Pissler, Knut Benjamin and Liu, Junhai, Corporate Governance of Business Organizations in the People's Republic of China: The Legal Framework After the Revision of the Company Law in 2005 (October 22, 2010). China: Corporate governance of business organizations, in: Klaus J. Hopt, Andreas M. Fleckner (Hg.), Comparative Corporate Governance: A Functional and International Analysis, Cambridge University Press, Cambridge 2013, 156 - 207, Available at SSRN: https://ssrn.com/abstract=1695888 or http://dx.doi.org/10.2139/ssrn.1695888

Knut Benjamin Pissler (Contact Author)

Max Planck Institute for Comparative and International Private Law ( email )

Mittelweg 187
Hamburg, D-20148
Germany

Junhai Liu

Renmin University of China - Law School, ( email )

59 Zhongguancun Ave.,
Haidian District
Beijing, 100872
China
86-139 1093 6920 (Phone)

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