3

The evolution of corporate governance in China

Introduction
In 1990, China became the first communist nation in the world to have a Stock Exchange with the formal establishment of the SHSE. Five Chinese companies became the first batch of firms listed on the official Exchange. This was a result of China's determination to establish a market-oriented economic system through economic reform and openness to the world, though doing so in a gradual evolutionary manner. The general principle guiding this gradualist approach to reform in China is that every new institutional change should be first implemented in one geographical area or industry sector, before being later put into wider application when the paramount leaders believe it is good for the rest of the economy. This top-down approach has been criticised by many but, at least until now, the Chinese economy appears to be performing well in comparison to other transitional economies, many of which have experienced serious difficulties and which look likely to experience further difficulties in the future.As part of the overall programme of Chinese economic reform, the reform of the financial system had four main objectives:
1 To provide additional finance channels through which the Government might raise capital for investment projects.
2 To address the bad loans/banking problem inherited from the central planning era.
3 To address the issues of control and ownership as the Chinese authorities hoped to establish a 'modern enterprise system', which 'clarified property rights, designated authorities and responsibilities, separated government and enterprise functions, and established scientific management' (State Economic Reform Commission, 1994). The authorities believed that the introduction of a joint stock system, and more specifically the corporatisation of the SOEs, was the main vehicle to achieve this objective.
4 To build an institution that can undertake the role of financial intermediation, which is essential to a market economy.

In this chapter, we detail and analyse the emergence and evolution of the joint stock system in China. This involves a consideration both of the development of

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Corporate Governance in China
Table of contents

Table of contents

  • Title Page iii
  • Contents vii
  • Figures x
  • Tables xi
  • Preface xiii
  • Acknowledgements xiv
  • Abbreviations xv
  • 1 - Introduction 1
  • 2 - Theoretical Approaches to Corporate Governance 10
  • 3 - The Evolution of Corporate Governance in China 31
  • 4 - The Effect of Ownership Structure on the Underpricing of Initial Public Offerings 62
  • 5 - Ownership Structure as a Corporate Governance Mechanism 88
  • 6 - The Determinants of Capital Structure 105
  • 7 - Chinese Corporate Groups 123
  • 8 - General Conclusions and Future Work 146
  • Notes 153
  • References 157
  • Index 170
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