Corporate Governance, Corporate Context

23 May 2007 Is the rapid growth of China’s economy an example of the effects of market liberalisation and the rise of transparency & private ownership? Or is it the first example of a successful state-run economy with government-ownership and opaque regulations? Should China learn from OECD countries in the development of its economic system, or should OECD countries learn from and copy China’s extraordinary success? These are not academic questions if you are a foreign investor or senior OECD government policymaker. Many large foreign firms have come unstuck with joint ventures aimed at the domestic market, where decision-making among Chinese partners has been affected by political factors, and regulations have not been applied in a neutral fashion. State ownership and government interference in commercial decisions, especially via opaque corporate governance processes, has often been blamed for such problems. However, is this a conscious Chinese strategy or a symptom of teething problems in the implementation of China’s 'international economic integration' strategy? Such key commercial questions for investors have focused the spotlight even more in recent years on the question of what is state and what is private, in China. Some ‘private’ Chinese companies appear to behave as if still under state control, either informally - or formally, with Party Committees publicly overriding Boards established under new OECD-like corporate governance regulations. Establishing the nature and finances of one’s business partner and the extent of state involvement, is often made more difficult by complex cross-shareholdings and by huge off-balance sheet loans or equity injections. There are four factors, which if better understood, can make a major difference in pursuing business smoothly in China, and in reducing structural risk. First, it is useful to be able to assess how ‘private’ a company is, and the factors which impact on this. Second, it is helpful to be able to understand the progress being made in establishing internationally accepted corporate governance and IAS norms, and the problems being encountered. Third, the pace of reform in the banking sector can be understood, not only the progress with banking regulation but also the significance of the major non-performing loan problem – and indeed the more recent use of banking regulatory changes rather than exchange rate & interest rate changes to manage ‘excessive’ lending growth. Fourth, it is important to understand the nature of ‘national versus provincial versus local’ decision-making and ownership. These four factors are explored in this China Hearing at the House of Commons. The aim is to help business representatives and policymakers in China and in the UK, to consider these issues and to help them think through their perceptions of problems and policy solutions. Paul Reynolds

Speakers Biographies for the Hearings on 23 May 2007

Download it PETER LUFF STEPHEN TIMMS GAO XI-QING WANG ZHAOXING PETER NOLAN STEPHEN PERRY PAUL REYNOLDS FRANK POST VINCENT H.S. LO STOYAN TENEV MIKE ASHLEY DAVID BREWER YI WANG STEPHEN WHALEY JAMES KYNGE TIM CLISSOLD Corporate Governance: China’s Footprints and the Road Ahead Full text: GAO Xiqing.ppt Is there a real private sector in China? Full text: Paul Reynolds.ppt