Deng Xiaoping who was known as Chinas paramount leader implemented a number of

economic reforms in 1978 in an attempt to stimulate economic growth and to raise the
Chinese peoples standard of living. These reforms seemed to yield the expected outcomes
as by 1995 the countrys GDP was a total of $720 billion, making China the worlds third
largest economic government after the United States and Japan (Lin, 2004:1) The number of
domestic companies listed in the countrys security markets increased from two in 1991 to
2,613 currently (Anon., 2015) A strong corporate government system and security markets
played a vital role in the effectiveness of these reforms. Corporate governance is universally
regarded as a collective of policies within a system that outline the rights and responsibilities
of major group of stakeholders in a company, and sets rules and procedures for making
decisions about company affairs (OECD, 1998).
During the past decades, even after Chinas entry into the World Trade Organization (WTO),
the Chinese government has had a major task of ensuring that its corporate governance
policies prepared and provided Chinese companies to fully participate with foreign
competitors. With that said it can still be noted that there is still more work that needs to be
done in respect of Chinas corporate governance system (Lin, 2004:2).

Recent Developments in Chinas Corporate Governance

The inception of the China Securities Regulatory Commission (CSRC) in 1992, China has
seen considerable progress in seven areas of its corporate governance system these areas
are:

rights of shareholders and rules for shareholders meetings,

duties and responsibilities of directors and independence of board of directors,
fiduciary duties,
performance assessments and incentive and disciplinary systems,
information disclosure and transparency,
insider information and related party transactions, and
the role of the auditor.

According to Lin (2004:2) the establishment of CSRC has brought about 300 laws and
advices around matters of Chinas security markets. The fundamental frameworks of Chinas
corporate governance is made up of the following pieces of Chinese legislature:

Company Law promulgated in December 1993,

Securities Law promulgated in December 1998,

Code of Corporate Governance for Listed Companies, which was jointly issued by
the China Securities Regulatory Commission and the State Economic and Trade
Commission in 2002.

Ownership Structures and Identity

According to Kutkchiyan (2007:2) the Chinese economy, in contrast to the Russian economy,
was influenced as came as a results of growing global trend towards outsourcing production
from developed countries to undeveloped ones. This was done as means to benefit from
cheap labour as well as lower taxation and weak legal regulation. The shift in the Chinese
economy came as a direct result from the Communist Party decision to open its previously
closed market to foreign investment. The primary objective of this decision was to promote
and stimulate economic growth. In the past China was particularly known as the worlds
biggest machinery of state. However, the introduction of the new free-market policy and its
comprehensive implementation on all levels of government brought about a noticeable
change.

As previously indicated, the free market policy was brought in to attract foreign companies,
and according to Kurchiyan (2007:3) this was done in four ways which will be briefly
discussed. Firstly, the legislation allowed for the reduction of corporate taxes to 15% it must
be noted that domestic companies were expected to pay 33% in these taxes. Secondly, the
historical restrictions on urban migration were lessened so that the labour intensive
manufacturing process could increase in the city areas of China. Thirdly, infrastructure
facilities such as roads, airports and harbours also saw a great improvement and expansions
to facilitate the industrial growth. The forth implementation was the role that state owned
media was expected to play in the promoting and convincing investors of this new economic
policies. Media houses in China as expected obediently followed the Communist Party line
on the compulsion for all this by intensively covering economic achievements while keeping
mute on genuine issues raised by ordinary people of China (Kutkchiyan, 2007:3).
Even though it is undoubtedly obvious that the media tactics used by the Chinese
government are questionable, however, the constant execution of Chinas economic policy
in such a short period of time has justifiably allowed the country to be named the workshop
of the world.

As mean to ensure the success of its economy policies, China has taken a decision some
will view as desperate others as nonsensical however the Chinese government has decided
to sell products to the global market at a fraction above the cost of the raw materials. This
process is described as malignant competition, and all it has achieved is profitless growth
(Kutkchiyan, 2007: 6).
With that said Kurchiyan makes mention of several major advantages that China enjoys in
comparison to Russia despite the fact that labour laws in the country allow for the
exploitation of employees, through the new emerging corporate culture of extremely long
hours for low wages. Some of the advantages as alluded by Kurchiyan (2007:8) that will
definitely be a pull factor for investors include the type of market, supply of cheap labour
although inhumane, the compromise-oriented legal culture, and lastly the superior
management of the post-communist transition in China.
According to Kutkchiyan (2007: 8) the difference between China in comparison to Russia is
the fact that emphasis has been placed mainly on economic progression rather than political
transition in order to maintain stability throughout, and according to Kurchiyan this stance
has proven to be effective. Kurchiyan also highlights the importance of timing, steady
transformation that lead to a superior development of market relationships as compared to
the former USSR.

2)

Changes and Goals in Ownership

According to Mattlin (2007:8) economic reforms implemented in the People's Republic of

China (PRC), that aimed to restructure large state-owned enterprises advanced at a slow
pace and even though different measures and reform models were tried since the 1980s,
most of them were half-hearted or unsuccessful. In efforts to deal with challenges and
unsolved problems of China's state-owned enterprises (SOEs) the Chinese government in
2003 introduced the State Assets Supervision and Administration Commission of the State
Council (SASAC). The formation of SASAC brought about the need to relook and redefine
the relationship between central government and the so-called 'central enterprises. These
central enterprises are key SOEs that have been selected by the government to form the
basis from which China's future top global companies will be created. Central enterprises
account for the bulk of SOE profits and around a quarter of SOE corporate investment.

In his 2007 report Mattlin (2007:9) highlighted the centralising and decentralising features of
the SASAC. In its implementation the SASAC, clearly separated central, provincial and
municipal SOEs and gave control of them to SASAC offices at the respective administrative
level clarified local control.
On the other hand, by taking all central enterprises away from the control of various
government agencies and placing them under the single supervision of a state organ that
reports directly to the State Council, central government appears to be asserting its authority.
SASAC strived to centralise several functions that were formerly distributed over various
government agencies and party organisations. This was done by firstly, making the state
organ responsible for handling state's ownership interests through the regulation and
supervision of central enterprises. Secondly, allowing the Ministry of Finance (MoF) to keep
total responsibility for all state-owned enterprises as well as the financial matters of noncorporate entities, such as government agencies.
The SASAC's mandate initially did not cover financial aspects and this meant that the
SASAC's ownership role was to be executed by the Central Huijin Investment Company
which is a controlling owner in some of the big state-owned commercial banks (SCBs). While
on the other hand, the supervision of financial organisations is the responsibility of the
Central Banking Regulatory Committee (CBRC), and practical management of bad assets is
performed by asset management companies (Mattlin, 2007: 10).
Control of Boards
China poses itself as a very interesting country in terms of the application of its corporate
governance laws, were you find part of the county using a two tier board system while the
other only uses one. According to a 2015 Deloitte report on board of supervisors and
stakeholders supervisory committees are mainly found in Mainland China and do not form
part of the corporate governance landscape in Hong Kong.
In Mainland China, the supervisory committee has two major responsibilities namely: to
monitor all activities of the board and CEO, as well as to monitor financial affairs and
business activities on behalf of shareholders. Should the supervisory committee be alerted
to any breaches of company policy and procedures they are expected to request company
directors or management to rectify any breaches of company policy or procedure that harms
the companys interests (Deloitte:2015) .
While State-Owned Enterprises Supervisory Committee Interim Provisions in the Company
Law (1993), state that supervisory committees of key state-owned enterprises core
responsibilities are to monitor financial condition, financial activities and acts of

management, to ensure that interest of the stakeholders are well protected within these
companies.
Chinese government has taken care to ensure that legal framework concern with
companies, shareholders and their respective success are properly documented and
enshrined.
They legal frame work does cover a lot of grounds that potential investors maybe concern
about when it comes to who controls a company, who protects the wellbeing of the company
and its investors (Albert, Lian, Piotroski, Sun & Wong, and 2014:15). Below are a few brief
legal frameworks that focuses on the control of boards within listed companies in China to
promote good corporate governance:

Article 148 of the Company Law of 1993 provides that the board of directors and
supervisory board are required to abide by the law, administrative laws and
regulations and the articles of association of the company and have a duty of loyalty
and diligence to companies. The directors shall not, by taking advantage of their
positions and powers, accept bribes or other unlawful incomes, nor may they

misappropriate the property of the company.

Article 4 of the Shenzhen Stock Exchange SME Board Listed Company Director
Conduct Guidance (2005) prescribes the basic principles of the directors duty of
diligence. Directors shall be diligent and responsible, shall positively strive to perform
their duties using their knowledge, skills and experience, help the company abide by
laws, regulations, rules, the related rules of the Exchange and the articles of
association of the company, and endeavor to protect the rights and interests of the
company, shareholders, and especially the public shareholders.

The Code of Corporate Governance of Listed Companies highlights that the board of
directors of a listed company may establish a corporate strategy committee, audit
committee, nomination committee, remuneration and appraisal committee and other
special committees in accordance with the resolutions of the shareholders meetings
(OECD, 2011).

Albert NG, Lian J, Piotroski J, Sun P & Wong TJ.2014. Corporate Governance in China:
Risks and Opportunities.

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