Party Building or Noisy Signaling? The Contours of Political Conformity in Chinese Corporate Governance
City University of Hong Kong Centre for Chinese and Comparative Law Research Paper Series Paper No. 2020/005
51 Pages Posted: 27 Jan 2020 Last revised: 7 May 2020
Date Written: December 27, 2019
In 2015, as part of a program to reform China’s state-owned enterprises (SOEs), Guiding Opinions were issued by the Central Committee of the Chinese Communist Party (CCP) and the State Council requiring SOEs to amend their corporate charters to formalize and elevate the leadership role of the party in their corporate governance. We empirically examine the patterns of “party-building” (dangjian) charter amendments adopted in response to this policy by all listed nonfinancial Chinese firms in the four-year period from 2015-18 to better understand the contours of political conformity in Chinese corporate governance.
Our findings support Milhaupt and Zheng’s (2015) analysis of the blurred dichotomy between SOEs and privately owned enterprises (POEs) in the Chinese political economy. Not all SOEs abided by the dangjian policy, and although POEs were not subject to the Guiding Opinions, a significant number of POEs, particularly politically connected ones, also amended their charters to add party-building provisions. We find wide substantive variation in adoptions within and across firm ownership types. The template for charter amendments circulated pursuant to the Guiding Opinions can be grouped into symbolic, decision-oriented, and personnel-oriented provisions. SOEs did not uniformly adopt the entire panoply of recommended provisions. In particular, SOEs cross-listed on Hong Kong or foreign stock exchanges adopted less intrusive provisions than other SOEs, suggesting that the capital market constrained political interventions into corporate governance. POEs that amended their charters to include party-building provisions were far more likely to adopt symbolic provisions than decision-oriented and personnel-oriented provisions, suggesting that the amendments were undertaken to signal fealty to the CCP without changing substantive corporate governance practices. These findings raise a number of questions about the prospects for Chinese corporate governance, economic performance, and foreign investment activity.
Keywords: Corporate Governance, State Capitalism, State-owned Enterprises
JEL Classification: G3, P1
Suggested Citation: Suggested Citation