Corporate Governance Key to Post-WTO Chinese Economy: Official

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Last updated at: (Beijing Time) Wednesday, November 21, 2001

Corporate Governance Key to Post-WTO Chinese Economy: Official

Improvement of corporate governance is of critical importance to Chinese enterprises and the Chinese economy now that the country has joined the World Trade Organization (WTO). Meanwhile, the diversification of corporate ownership is in desperate need as China's capital market is suffering some problems from the old economic system.

Calling for Improvement of Corporate Governance

Improvement of corporate governance is of critical importance to Chinese enterprises and the Chinese economy now that the country has joined the World Trade Organization (WTO), a senior Chinese economic official said Tuesday in Shanghai.

Hou Yunchun, secretary-general of the State Economic and Trade Commission, made the remark at a business forum co-sponsored by the commission and the British Ministry of Trade and Industry.

Calling for Diversification of Corporate Ownship

According to Hou, by the end of 2000, 68.7 percent of the 2,919 major state-owned enterprises in China had been restructured in accordance with the Business Corporation Law.

However, he said, the reforms have not been complete, and are even seriously deformed in some cases. The phenomenon of "insider control" still exists in many enterprises, preventing them from making any significant improvement in management and competitive edge.

The official called for the diversification of corporate ownership, saying that the government will encourage major state-owned enterprises to go public, and cross-ownership between Chinese and foreign firms.

Measures must also be taken to ensure the independence of boards of directors and the management, and the system of independent board members shall be introduced, Hou said.

The official advocated further reforms to reduce government interference in enterprises. For example, a compromise must be found between the principle of party control and the necessity of allowing the board of directors to appoint managers.

Current Situation of Corporate Governance

The situation in China is unique and requires special solutions.The majority stocks of many local listed companies are held by the state so that the managers usually also act as the company's owner. The situation sometimes is not good for other investors.

China also needs to have totally independent directors that have the knowledge to help and guide the company with.

Chinese society has not totally developed the understanding that the interests of investors -- especially small investors -- must be protected.

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