Corporate Governance in China

24 Pages Posted: 22 Oct 2014

See all articles by Randall Morck

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

Bernard Yin Yeung

National University of Singapore - Business School

Date Written: Summer 2014

Abstract

Since the death of Mao Tse Tung in 1976, China has achieved unprecedented economic growth. Per capita GDP has increased from one of the lowest in the world to a level that is firmly in the middle of the international ranks. But can China continue on the growth path of the last four decades? The question arises because of the tendency of developing economies, having achieved periods of “catch‐up” growth, to become mired in a “middle‐income trap” that appears to stem from a variety of factors, including the tendency for elites and oligarchs to protect their own interests by blocking competition. China's success to date has come without many of the key institutions - notably, private property rights, shareholder‐centered corporate governance, and a well‐functioning impartial legal system - that most Western economists believe essential to long‐term success. China's description of its system as “market socialism with Chinese characteristics” is an accurate one. Markets, not decrees, set most prices, while the state, in the form of the Communist Party, continues to control the careers of SOEs' senior executives, regulators, and government officials, and retains “options” to intervene in a large variety of financial and corporate affairs as well as judicial processes and decisions. Chinese history underpins the system in the sense that the Party is, at least in some respects, a genuine meritocracy reminiscent of the imperial civil service of past eras. And the authors raise the possibility that the Party's Leading Role has actually contributed to China's extraordinary growth not only by fostering such a meritocracy, but by initiating and presiding over what development economists describe as a “Big Push,” a coordinated simultaneous development of many firms in multiple industries that was necessary to transform a subsistence agricultural economy into a modern industrial one. But for all the effectiveness of China's “Big Push,” the authors close by expressing doubt that China can continue to rise into the world's economic upper ranks until it adopts the substance as well as the form of those missing institutions that, they argue, are the only well‐marked path to high‐income status.

Suggested Citation

Morck, Randall K. and Yeung, Bernard Yin, Corporate Governance in China (Summer 2014). Journal of Applied Corporate Finance, Vol. 26, Issue 3, pp. 20-41, 2014. Available at SSRN: https://ssrn.com/abstract=2513038 or http://dx.doi.org/10.1111/jacf.12076

Randall K. Morck (Contact Author)

University of Alberta - Department of Finance and Statistical Analysis ( email )

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada
780-492-5683 (Phone)
780-492-3325 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governence Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Asian Bureau of Finance and Economic Research ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Bernard Yin Yeung

National University of Singapore - Business School ( email )

15 Kent Ridge Drive
BIZ 1 Level 6
Singapore, 119245
Singapore
65 6516 3075 (Phone)
65 6779 1365 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
0
Abstract Views
491
PlumX Metrics