August 4, 2014
The Chinese economy is experiencing a period of unparalleled wealth and growth opportunities. The mandate to improve the corporate governance (“CG”) of Chinese companies as part of the government’s efforts to develop the financial market has become a top priority for the Chinese national agenda. To understand CG in China, one has to take into consideration that China has been undergoing a transition from a planned economy to a market-oriented economy. The Company Law and the Securities Law, both introduced in 2006, provide the foundation for drawing up and developing a corporate governance framework in China. The revised Company Law improved companies’ governance structure and mechanisms to protect lawful shareholders’ rights and public interests. The revised Securities Law improved the system governing the issuance, trading, registration and settlement of securities and provided for the establishment of multi-tiered capital-market architecture. The Code of Corporate Governance (“the Code”) for Listed Companies (2002) was drawn up in line with the basic principles established by the original Company Law, Securities Law and other relevant laws and regulations and has made a positive contribution to promoting listed companies in China to establish and improve a modern enterprise system, standardize their operations and promote the healthy development of the securities market. The Code sets forth, the basic principles for corporate governance of listed companies in China, the means for the protection of investors' interests and rights, the basic behavior rules and moral standards for directors, supervisors, managers and other senior management members of listed companies. Corporate Governance Reforms: The challenge with Corporate Governance reforms is that China started its CG reform efforts in an environment where most of the elements of a well functioning financial market were not in place. A key component of China’s CG reform is the privatisation of state-owned enterprises (SOEs). The restructuring of SOEs, which started in the 1980s, has seen more than 80 percent of the SOEs being transformed into corporate entities.
- In 2005, the CSRC announced the initiative to convert non-tradable shares16 into tradable shares. The new initiative (called “Administrative Measures on the Split Share Structure Reform of Listed Companies”) provides the ground rules to allow for the conversion of the shares Conversion of Non tradable Shares into Freely Tradable Shares.
- In February 2006, the Ministry of Finance released the Basic Accounting Standards for Business Enterprises (ASBE), consisting of 38 standards to be applied to all listed Chinese companies. The aim of this initiative is to facilitate further development of a market-like economy in China.
- In March 2003, the CSRC released an amended directive on quarterly reporting (replacing its original directive of April 2001). This new directive focuses on the form and content of such reports and requires listed companies to deliver them within one month after the end of the first and third quarters.
- The QFII programme, introduced in 2002, was aimed at opening the doors for foreign capital into China’s financial market.
- Strengthening the board’s loyalty, due diligence and protection of the benefits of companies and Shareholders.
- Establishing mechanisms for Board’s supervision and restraints over management.
- The Code of Listed Companies in China stipulates that independent directors shall account for more than one-third of the board in a listed company.
- The Code of Listed Companies in China stipulates that according to the resolution of the General Shareholders’ meeting, a listed company’s board may set up special committees on strategy, audit, nomination, remuneration and appraisal, etc.
- The Code of Listed Companies provide that a listed company shall establish an incentive mechanism linking the managerial personnel’s remuneration with the company’s performance and the individuals’ performance.
- The Code requires the listed Companies to disclose Information ongoing basis. Listed companies shall truthfully, accurately, completely and timely disclose information as required by laws, regulations and the company's articles of association