Corporate Governance in the People's Republic of China

Jinglian Wu

In the 1980s, at the beginning of reform in the People's Republic of China (PRC), the PRC tried to strengthen incentives for local governments and enterprises, and thus improve the economy by "delegating power and conceding profit." However, the expected results were not achieved. Only in November 1993, did the CPC Central Committee's decisions recognize that reform of state-owned enterprises (SOEs) requires institutional transformation at the enterprise level and corporatization .The experiment of establishing a "modern corporate system" in large and medium-sized SOEs began in 1995. The Fourth Plenary Session of the CPC 15th National Congress endorsed that the ownership structure of SOEs should be diversified, except for a few cases that were to stay under the state monopoly. Corporate governance with a system of checks and balances between owners and managers was the core of the modern corporate system. Since then, the PRC has been working to improve corporate governance and achieve progress. Issues still be addressed include reducing the proportion of state equity, identifying agencies to represent the state in companies where shareholders' rights are exercised, improving the working procedures of boards of directors, conquering insider control, reinforcing director committee's supervision of managers, building up an incentive compensation system for managers, and developing a well-regulated securities market.

Jinglian Wu, a graduate of the Department of Economics, Fudan University, Shanghai. is senior research fellow, Development Research Center, State Council of the PRC; professor of economics, School of Economics, Peking University, Graduate School of Chinese Academy of Social Sciences; member of the Academic Council, China Europe International Business School, Shanghai; member, Standing Committee of the Chinese People's Political Consultative Conference (CPPCC); and deputy director of CPPCC.