Institutional investors play a crucial role in promoting good corporate governance and the efficient allocation of capital. As such, regulators have urged institutional investors to act as responsible stewards by actively engaging with their investee corporations in order to deliver long-term value to their ultimate beneficiaries and to promote the long-term success of corporations. While there is significant literature on US and UK institutional investors, far less has been written about institutional investors in China.
 This paper corrects this deficiency by exploring the critical question of whether, and if so, why, institutional investors in listed corporations in China are generally passive. I distinguish three categories of corporations—state-owned enterprises (SOEs), private-owned enterprises (POEs), and strategic investor enterprises. And I distinguish two main types of investors—state-backed institutional investors (SII) and privately-backed institutional investors (PII).
 I make three key arguments. First, in SOEs where the state is the controlling shareholder, minority SIIs and minority PIIs are generally passive. This is because minority SIIs are subject to regulatory requirements, face inadequate incentives, and encounter conflicts of interest. As for minority PIIs, they may be subject to influence or pressure from the state, may face state retaliation for their activism, and may rely on an investor protection agency. Second, in a POE where a private investor is in the majority, while some minority SIIs that are set up to advance the state’s interest are activist in nature, others are passive. Furthermore, most of the domestic minority PIIs are not active. As for the large foreign minority PIIs, there is inconclusive evidence that they improve monitoring and firm performance. Finally, in a strategic investor enterprise where there are majority strategic PIIs, they may face obstacles when pursuing an activist approach. This is because the management of the company may be controlled or influenced by the state, and minority investors can rely on an investor protection agency to challenge or constrain the actions of the majority strategic PII.
 To conclude, it suggests three principal mechanisms to increase engagement by minority SIIs, minority PIIs, and the majority strategic PII. The first is to reduce the influence of the state in SOEs. The second is to increase the incentives for the professional managers of passive minority SIIs to engage. Finally, the conflicts of interest surrounding the investor protection agency should be addressed.
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