Governance of listed state-owned enterprises in China : the rise of a new state-led model?

Abstract

China introduced major reforms to its decade-old Company Law and Securities Law in October 2005. The aim of this thesis is to (re)interpret China's post-2005 legal and regulatory reforms concerning governance of listed SOEs and explore whether these reforms have given rise to a new model of corporate governance. The developments are examined through the lens of state capitalism and institutional change. In doing so, the thesis draws upon three strands of literature, namely, comparative capitalism, comparative corporate governance and law and capitalism, particularly Milhaupt and Pistor's postulation of the role of the state in conditioning the interaction between legal and economic changes in state-led economies. While corporate governance is a vast area, this thesis focuses on the evolution of Chinese law and practice concerning three sets of company relations central to the former state-led model of corporate governance. These are state-manager relations, investor protection and non-shareholder stakeholder (including employee) protection. Commonly adopted in the post-war state-led economies until the late 1980s, this model was also reflected in the governance of Chinese listed SOEs prior to the 2005 corporate law reforms. This thesis argues that China's post-2005 regulation of these three sets of relations has undergone significant changes. However, these changes have not led to a greater convergence in the governance of Chinese listed SOEs with the Anglo-American outsider-based model, as widely suggested in the literature. What has emerged from China's post-2005 reforms is a new state-led model that can be called 'a state-led stakeholder' approach. While state involvement in corporate affairs remains strong, this model pays equal attention to strengthening monitoring of managers and the protection of minority shareholders and other non-shareholder stakeholders, including, but not limited to employees. Although difficult to reconcile with the outsider-based model, the rise of this new model in China cannot be separated from its efforts to maintain the Chinese form of state-led economic development, while grappling with the increasing demands made on the state for protection by investors and other stakeholders. The emergence of this new state-led model has been better reflected in the Chinese post-2005 regulatory framework, than the reality of corporate governance in listed SOEs. The lack of more radical changes in the latter respect has been, in part, caused by various disadvantages associated with the state as essentially the sole guardian of this new governance model. The long-term viability of this model is likely to hinge on the balance between the will and capacity of the state to adjust its competing goals and the diverse interests within listed SOEs, and the risk of lax internal controls that persists at the corporate level. However, due in part to its general congruence with the Chinese state-led economic development, the continued evolution of this model is likely to be incremental. As such, the articulation of the state-led stakeholder model of corporate governance makes a significant contribution to our understanding of not only Chinese corporate governance, but also comparative corporate governance and comparative capitalism more broadly.