Institutional Investors in China: Corporate Governance and Policy Channeling in the Market Within the State

74 Pages Posted: 3 Jun 2021 Last revised: 17 Nov 2021

See all articles by Lin Lin

Lin Lin

National University of Singapore (NUS) - Faculty of Law

Dan W. Puchniak

Yong Pung How School of Law, Singapore Management University; ECGI

Date Written: June 3, 2021

Abstract

The extraordinary rise of China’s economy has made understanding Chinese corporate governance an issue of global importance. A rich literature has developed analyzing the Chinese Communist Party’s (CCP’s) role as China’s largest controlling shareholder and the impact that this has on Chinese corporate governance. However, the CCP’s role as the architect – and direct and indirect controller – of institutional investors in China has been largely overlooked in the comparative corporate law literature.

This Article aims to take the first step in filling this gap in the literature by drawing on Chinese sources and fresh hand-collected empirical, interview, and case study evidence to analyze the meteoric rise of institutional investors in China. It provides a taxonomy of institutional investors in China and reveals how as the market for institutional investors has grown it has become increasingly “atomized” as different types of institutional investors have proliferated. The Article reveals how the CCP has actively and gradually promoted the growth of domestic institutional investors, in terms of types and size, through relaxation of policies and law reforms to improve corporate governance and stabilize the stock market, while limiting the influence of foreign institutional investors. It further analyzes all the Activist Campaigns undertaken by institutional investors in China and maps the network of government bodies, regulations, and tactics that the CCP has developed to directly and indirectly control State-Owned Institutional Investors (SOIIs) and Private-Owned Institutional Investors (POIIs) for the purpose of policy channeling.

This Article concludes by taking a step back and briefly considering what this examination of institutional investors tells us about China’s unique form of capitalism and system of corporate governance. It suggests that the rise of institutional investors in China has been strategically developed in a way to reinforce the CCP’s ultimate control over the financial system. However, contrary to what some conceptions of “state capitalism” may suggest, the CCP does not micro-manage institutional investors on a day-to-day basis. Rather, institutional investors normally function according to free-market forces and increasingly perform an important corporate governance role – with the CCP using its policy channeling in a targeted way to stabilize the market in times of crisis, execute important legal and market reforms, and to maintain calm in society during critical political events: what this Article coin’s the “market within the state” for institutional investors in China.

Keywords: Chinese Corporate Governance, Institutional Investors, Comparative Corporate Governance, Chinese Communist Party, Varieties of Capitalism

JEL Classification: K22

Suggested Citation

Lin, Lin and Puchniak, Dan W., Institutional Investors in China: Corporate Governance and Policy Channeling in the Market Within the State (June 3, 2021). European Corporate Governance Institute - Law Working Paper No. 590/2021, Columbia Journal of Asian Law, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3858348 or http://dx.doi.org/10.2139/ssrn.3858348

Lin Lin

National University of Singapore (NUS) - Faculty of Law ( email )

469G Bukit Timah Road
Eu Tong Sen Building
Singapore, 259776
Singapore

Dan W. Puchniak (Contact Author)

Yong Pung How School of Law, Singapore Management University ( email )

55 Armenian Street
Singapore, 179943
Singapore

ECGI ( email )

c/o the Royal Academies of Belgium
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Belgium

HOME PAGE: http://https://ecgi.global/users/dan-puchniak

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