The previous chapters have focused on various issues related to corporate governance in Chinese listed companies. However, the listed companies, which have been transformed into 'modern enterprise systems' in the light of 'market economy' principles, only constitute a part of the whole Chinese economy. More importantly, they occupy a lower level in the hierarchy of governance structure under the corporate groups. The task of this chapter is a critical investigation of the behaviour of corporate groups.
We begin the investigation of Chinese corporate groups with two quotes that focus on the management and the internal architecture of modern business organisations - one from Francis Fukuyama (1995), and the other from Alfred Chandler (1980):
The Chinese constitute the world's largest racial, linguistic and cultural group. They are spread across a vast geographical area and live in variety of states, from the still communist People's Republic of China to overseas Chinese settlements in Southeast Asia to industrial democracies like the United States, Canada and Great Britain. Despite this variation in political environment, it is nonetheless possible to speak of a relatively homogenous Chinese economic culture (Fukuyama, 1995, p. 70). The hallmark of this Chinese economic culture is 'small scale enterprises' and the cause is the 'very great difficulty Chinese family businesses seem to have in making the transition from family to professional management'.
(Fukuyama, 1995, p. 74)
The modern business enterprise is defined by its two major characteristics. First, it contains many distinct operating units, each with its own administrative offices, its own full-time salaried manager, and its own sets of books and accounts that can be audited separately from those of the larger enterprise. Theoretically, each could operate as an independent business enterprise. The second salient characteristic of the modern business enterprise is therefore that it employs a hierarchy of middle- and top-salaried managers who supervise the work of the units under its control and who form an entirely new class of businessmen.
(Chandler, 1980, pp. 10-11)