Comparative Analysis of Corporate Governance in China and Abroad

Author: Hu Angang
Publisher:
Publish Date: 2004-01-01
Features: Corporate governance is basically divided into two systems and three levels. The two systems refer to the power distribution system within the company and the market pressure from outside the company, which is the corporate control market. The three levels are the power struggle within the company, the external battle for control, and the information disclosure institutions situated between the two. Since the 1980s, some companies internationally have collapsed due to poor management and unreasonable governance structures. As a result, a wave of corporate governance, originating in the UK, swept across the world. Since the 1990s, under the direct impact of economic globalization, corporate governance issues have received increasing attention from countries worldwide. Improving the level of corporate governance has become a significant global task. The Asian financial crisis, the sluggish Japanese economy, and the Enron scandal in the United States triggered a global reflection on corporate governance models. The internal control model, represented by Japan and Germany, the external control model represented by the United States, and the family control model in Southeast Asia—all failed to live up to expectations. These historical experiences demonstrate that there is no universally accepted international corporate governance model. Due to increased economic openness and deepening reforms, China's transition is shifting from focusing on fostering competition to a diversified ownership structure. As microeconomic entities, enterprises play an increasingly important role in the national economy. The governance issues of these enterprises have naturally garnered widespread attention. Effective corporate governance is key to the success of market transition. For Chinese enterprises, the uniqueness of the transition process has made China's corporate governance fundamentally different from the above three models. China's corporate governance has far surpassed the traditional definition of corporate governance issues, encompassing internal incentive and supervision mechanisms, the competitive environment of enterprises (legal system, financial system), and market structure. Like other countries, China's current corporate governance also faces many problems.
1. Excessive concentration of equity. Listed companies are mostly state-owned enterprises, and the equity of these enterprises is highly concentrated. The proportion of tradable shares in the total equity of listed companies is relatively low.
2. Severe insider control. Company information is concentrated in the hands of a few, and insiders manipulate company operations and engage in numerous related transactions.
3. Inadequate protection of rights for small and medium shareholders and creditors. Major shareholders hold absolute or relative control over the company, making it difficult for small and medium shareholders to counterbalance them in voting. This leads to the loss of effective means and motivation for supervising major shareholders. The rights of small and medium shareholders are also weakly supported by the judicial system. In bankruptcy proceedings, the legitimate rights of creditors are often not fully protected.
4. The function of the board of directors is difficult to realize. The structure of the company's board of directors is unreasonable, with an excessive proportion of executive directors.
5. Incomplete legal environment. A series of laws and regulations, including the Company Law, Securities Law, Bankruptcy Law, information disclosure, accounting standards, etc., contain many provisions that are not suitable for the current corporate operating environment, and the laws and regulations are relatively lagging. A weak legal system has, in fact, hindered the continuous improvement of corporate governance structures.
6. Unreasonable intervention by local governments. On one hand, direct government intervention in enterprise operations is still very common, and some companies that need to go bankrupt cannot even proceed with bankruptcy procedures. On the other hand, loans from state-owned banks to enterprises are often subject to pressure from government departments. Corporate governance is more important for China than ever before. Joining the WTO is a landmark event marking China's rapid integration into the international community. The success of this integration hinges on the competitiveness of Chinese enterprises. Chinese enterprises have low management levels and relatively backward technology. Only by improving the structure of corporate governance can the gap in competitiveness be narrowed.