Corporate Law Reform in the People's Republic of China

Abstract

This paper traces the development of corporate law in the People's Republic of China (PRC) that began with the post-1978 economic reforms. With the jettison of the iron-rice bowl in favour of the contract responsibility system, enterprises gained autonomy and gradually became self-managed entities responsible for their own profit and loss. Ownership structure, however, became blurred when these entities amass wealth and establish a network of businesses through self-accumulation. The Enterprise Law, 1988 propounded the 'separation of ownership from management' concept as a way to clarify the ownership structure. At the same time, it unwittingly heralded the beginnings of corporate identity in Chinese enterprises. Such a concept easily springboards the shareholding system in many Chinese enterprises and the practice was legitimized by the PRC Company Law of 1993. The PRC Company Law welded Western corporate models with traditional concepts of Chinese law to produce a unique Company Law with distinctly Chinese characteristics. The form, capital structure and internal governance of Chinese companies are examined in depth and comparisons are made with Western corporate models in Part IV of this paper. Despite the efforts of Chinese legislators to aligned Chinese companies with international norms, critical problems abound. Part V addresses these problems which are rooted in the lack of a corporate governance culture in Chinese companies and a weak banking system and capital markets which failed to be effective monitoring devices to instill market discipline in these companies.