Chinese Corporate Governance Regime from a Historical-Cultural Perspective: Rethinking Confucian System of Governance

28 Pages Posted: 5 Oct 2012

See all articles by Alex Chu Kwong Chan

Alex Chu Kwong Chan

Gratia College

Angus Young

Department of Accountancy & Law, Hong Kong Baptist University; German-Sino Institute of Legal Studies, Nanjing Univeristy; School of Law, Western Sydney University

Date Written: October 3, 2012

Abstract

Research Issue: Transplanted modern laws from the Western might be ill suited for China, because they are alien and reflects Western ideals and values. Looking back into China’s own rich history, there appeared to be an effective indigenous system regulating governance, one that was non-legal and based on Confucian doctrines governing Chinese merchants for centuries. Therefore, it might be prudent to revisit and revive such value based, norm driven self-regulated system to regulate corporate governance in China.

Research Findings/Insights: At the heart of this Confucian centered benchmark, is the notion of san gang wu chang. This system of governance is not state or rule centered, rather this is a value based, norm driven, and community enforced framework, aimed at creating social harmony. These Confucian moral values aspire to higher standards of behaviour, much greater than what laws could because it is archetype standards of a righteous person. History has shown that in China’s regions like An Hui and Shan Xi merchants had voluntary observed these Confucian traditions. There was even a Chinese terminology to describe merchants that adhere to such self-regulatory standards, known as ru shang. More importantly, such self-regulatory governance measure had worked in China for centuries.

Theoretical/Academic Implications: First, this study contradicts myths and misleading claims by observers like Max Weber who claimed that Confucianism had prevented China from developing capitalistic economy. Second, the analysis of san gang wu chang, as a governance and regulatory mechanism, it appears to work as a community of practice at the macro level, and on a micro level compliance is motivated by an individual’s beliefs and compulsion to do so. This was more than an ideal for the reason that moral benchmarks combined with hierarchical order creates a socially binding set of obligations. Examples from An Hui and Shan Xi had offered antidotal evidence of how this Confucian centered system was reaised. Furthermore, this regime was far more complex and sophisticated than a set of moral principles. Unlike rules, it was flexible with harmony, instead of set of laws as its an end goal.

Practitioner/Policy Implications: China had an indigenous set of governance code that was no less effective than contemporary Western laws and thus should look at its own rich history and culture to provide an alternative set of company laws, one that is based on Confucianism. This is not to say that Chinese or Confucian centred regulatory order is necessarily superior to Western models, rather this is intended to offer greater variety to suit different types of investors and incorporators in China. This alternative is expected to be more culturally receptive from a Chinese perspective. Critics might argue that this is unnecessary. This paper argues that the present choice of different Western models of governance are based on Judo-Christian heritage and elements of Roman civil law dating back to the Roman Empire, all of which might be culturally estranged and meaningless beyond superficial compliance for the Chinese. Yet this paper does not advocate the removal of existing Western modeled corporate laws in China, the regulation solution would most likely be the establishment of a pluralistic governance regime, one the international markets are familiar with and the other, a Confucian based Chinese framework for those who subscribe to Confucian values.

Keywords: Corporate Governance, Confucius, Chinese Values, History

JEL Classification: L50, M14, N00, N45, Z10

Suggested Citation

Chan, Alex Chu Kwong and Young, Angus, Chinese Corporate Governance Regime from a Historical-Cultural Perspective: Rethinking Confucian System of Governance (October 3, 2012). Available at SSRN: https://ssrn.com/abstract=2156300 or http://dx.doi.org/10.2139/ssrn.2156300

Alex Chu Kwong Chan

Gratia College ( email )

5 Wai Chi St
Shek Kip Mei
Hong Kong
Hong Kong

Angus Young (Contact Author)

Department of Accountancy & Law, Hong Kong Baptist University ( email )

Kowloon
Hong Kong

German-Sino Institute of Legal Studies, Nanjing Univeristy ( email )

22 Hankou Road
Nanjing, Jiangsu 210093
China

School of Law, Western Sydney University ( email )

Parramatta
Australia

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