Corporate Governance

The BRIC Project -- China -- An Introduction to Corporate Governance in China

By Daniel Snare

The People's Republic of China is a member of the 'BRIC' group (Brazil, Russia, India and China) of emerging markets.  While it is universally understood that China has grown since the 1970's by privatizing certain segments of its economy, its corporate governance (gongsi zhili) structures are still developing. Modernization and reform of China's corporate governance institutions are vital to sustainable growth and investment opportunity. 

It is important to frame the importance of the discussion by recognizing the following:

• China's GDP, year over year, grew by 11.4% in 2007

• China's economy is the second largest in world measured in purchasing power parity

• 9 automobiles to every 1,000 Chinese's, vs. 1,000 automobiles to every 1,000 U.S. citizens

•  The Shanghai and Shenzhen exchanges together are the 8th largest in the world

• There are over 70 million investor accounts in China, representing 300 million Chinese citizens

• 70% of the listed companies in China do not meet international corporate governance standards

• Within the next decade, China's share of the global market should equal the U.S.'s share

• Within the next three decades, China will likely be the largest market in the world

While China copes with the stress of rapid growth and corporate governance reform, it is making concerted, substantial efforts to establish standards that bring health to its capital markets.  Lingering in the background, however, is the fundamental problem of China's pervasive State ownership and control of private and public corporations.  Instituting meaningful, incentive based reform in China, therefore, is important to fill the regulatory gap as the State withdraws and investors move in as dominant shareholders of Chinese companies. 

Over the following weeks and months, the blog will post a four-part series analyzing the bourgeoning corporate governance régimes in China.  Part I will address the regulatory structures currently in place in China, and the nature of the corporate forms they authorize.  Part II will address the issue of executive compensation in China, and analyze its approach to controlling abuse.  Part III will address the nature of shareholder rights in China, and recent reforms.  Finally, Part IV will summarize current literature's perceived strengths and weaknesses of corporate governance in China.

Full post as published by The Race to the Bottom on April 23, 2010 (boomark / email).