An overview of corporate governance in China

The author examines corporate governance qualitatively and applies corporate governance principles to Chinese companies, especially the state owned enterprises. The paper reviews the meaning and importance of corporate governance, the institutional structures that exist, and the corporate governance problems that typically arise. A significant problem with achieving good corporate governance lies with the agency problem. Overcoming this problem therefore is crucial. Key characteristics of good corporate governance emerge. Good corporate governance depends upon company specific structures such as the board of directors as well as market information flows. Corporate governance is examined in its peculiarly Chinese setting. The paper traces the development of reform in China and how it has impacted corporate governance. Developments such as domestic listing and foreign listing are examined as to their impact on corporate governance. Chinese corporate governance still faces many challenges. Corporate governance is often weak because of a variety of problems. Among these are fragmented stock ownership, lack of a bond market, and poor quality information. Improving monitoring and the incentive structure remain significant challenges. Capital formation and securitization are often politically driven. State owned companies may have multiple masters, whose priorities may not lead to value creation. At the same time describing Chinese markets involves a moving target. Substantial changes have occurred in the last decade improving corporate governance and more changes will surely come soon.