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Efforts to Improve Corporate Governance in China. Dr. Ruyin Hu Director of Research Centre Shanghai Stock Exchange. Introduction. Development of Stock Companies and Stock Market in China - PowerPoint PPT Presentation
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Efforts to Improve Corporate Governance in China
Dr. Ruyin Hu Director of Research CentreShanghai Stock Exchange
IntroductionIntroduction
Development of Stock Companies and Stock Market in China
The Chinese Characteristics of Ownership Structure and Organizational Structure of Listed Companies
The Model and Problems of the Present Chinese Corporate Governance
The Next Steps to Improve Governance in China
Conclusion
Development of Stock Companies and Stock Market in China
The Emergence of Stock Companies and Stock Market
The Impetus of the Establishment Stock Market . Separate Management from Ownership to restructure SOEs Channel Household Savings to SOEs to Set Up Direct Financing System In 1984, A Department Store in Beijing Issued Shares. In December 1990, The Shanghai Stock Exchange was Inaugurated. In April 1991, The Shenzhen Stock Exchange Opened.
Development of Stock Companies and Stock Market in China
One of the Fastest Growing Emerging Markets in the World
The Significant Growth of Market Capitalization
0.00
1000.00
2000.00
3000.00
4000.00
5000.00
6000.00
1992 1993 1994 1995 1996 1997 1998 1999 2000
June
100 Mil. $
0
10
20
30
40
50
60%
Market Capitalization Ratio of Market Capitalization to GDP
Development of Stock Companies and Stock Market in China
One of the Fastest Growing Emerging Markets in the World
The Number of Listed Companies in Recent Years
53
183
291 323
530
745
851
949997
0
200
400
600
800
1000
1200
1992 1993 1994 1995 1996 1997 1998 1999 2000 J une
The Chinese characteristics of Ownership Structure and Organizational Structure of Listed Companies
Different Types of Shares
Shares of Chinese Listed Companies
Different Types of Shares
Domestic Shares Foreign Shares
The State
Shares
The Legal Person
Shares
The Tradable
A Shares
B
Shares
H
Shares
N
Shares
The Chinese Characters of Ownership Structure and Organizational Structure of Listed Companies
Ownership Structure of Chinese Listed Companies(1999)
Legal PersonShares
26%
Others2%
A Shares26%
B Shares5%
H Shares4% State Shares
37%
The Chinese Characters of Ownership Structure and Organizational Structure of Listed Companies
The Organizational Structure of a Typical Listed Company
Shareholders
Board of Directors Supervisory Committee
General Manager
VGM1 VGM2 CFO CTO
The Model and Problems of Present Chinese Corporate Governance
Corporate Governance Environments in China A Legal Framework with Poor Shareholder Protection The Predominance of Closely Held Corporations Weak Takeover Market and Few Hostile Offers The Small Shareholder’ s Inactivism and Free-Rider Behavior Government Intervention in the Management Appointment and
Corporation Operations
The Keyman Model
The Model and Problems of Present Chinese Corporate Governance
The Characteristics of“ Keyman Model”
Chinese Listed Companies
High Ownership Concentration Diversified Ownership
Strong Blockholders
Weak Minority Interest
Strong Executives
Weak Outside Shareholders
The Blockholder Representative Controls
the Corporation
The Insider Controls the Corporation
The Model and Problems of Present Chinese Corporate Governance
The Characteristics of“ Keyman Model”
The Keyman: Too Much Power: Management and Control Powers Held in
One Person’ s Hands Lack of Accountability Pursue One’ s Own Interest Instead of Maximizing
Shareholder Value
The Model and Problems of Present Chinese Corporate Governance
Serious Problem of “ Keyman Model” Interest Conflicts between Blockholders/Managers and Minority
Shareholders
Blockholders Expropriate Interest of Minority Shareholders through Related-Party Transactions
Political Utilitarianism and Self-Interest Behavior Replace the Shareholder Value as the Implicit Criterion of Management
Prevailing Soft Budget Constraints in Former SOEs
The Model and Problems of Present Chinese Corporate Governance
Steps Taken to Improve Governance in China Better Rules and Practices of Disclosure Safeguard Conflicts of Interest : Rules of Related-Party
Transactions Disclosure; the Use of Human,Financial and Physical Resources of a Listed Company Is Separated from That of Its Controlling Company
Higher Standards of Ethics of Directors:the New Listing Rules Require Each Director to Have a Formal Declaration and Undertaking in the Performance of His Duties
The Next Steps to Improve Governance in China
A Dominant Policy Issue to Develop Market Economy in China
Re-construct Thousands of SOEs Improve the Performance of Stock Markets Establish the Foundation of the Market Economy
The Next Steps to Improve Governance in China
Three Steps to Improve the Corporate Governance
Strengthen Legal Rules and Enforcement Diversify the Ownership Maintain the Independence of Board of Directors
The Next Steps to Improve Governance in China
Strengthen Legal Rules and Enforcement
Legislate to Improve Minority Shareholders Protection and Make Preparations for the Setting up of the Investor Protection Centre
Adopt More International Accounting Rules Strengthen Disclosure Requirement Issue the “ SSE Guidelines for Corporate Governance”
The Next Steps to Improve Governance in China
Diversify the Ownership
Reduce or Sell Off the Shares held by the Governments Introduce other Forms of Sizeable Outside Shareholders
Including Closed-End & Open-End Mutual Funds,Insurance Companies,Pension Funds and Other Institutional Investors
The Next Steps to Improve Governance in China
Maintain the Independence of Board of Directors
Encourage More Independent Directors to Enter the Board of Directors
Establish Audit Committee,Nominate Committee etc.to Curb the Power of Blockholders/Executives
Conclusion
Corporate Governance Reform are Very Complicated in China, the Solution May Lie on the Interactions among Economic Performance,Available Governance Resources and the Political System Reform
To Predict: China’ s Governance Model Will Approach the Anglo-American Model
