ANONYMOUS

PARTS OF OUR PRESENTATION

FACTS & FIGURES ABOUT CHINA

CORPOR ATE GOVERNANCE MODELS OF CHINA

TRADITIONAL MODEL TRANSITIONAL MODEL MODERN COPORATE MODEL

FACTS & FIGURES ABOUT CHINA

People's Republic of China (PRC) Came into being 1 October,1949 after China CW Founder : Great MAO ZETING Situated in East Asia Most Populous country of the world (1.3 Billion) Worlds 2nd largest country by LAND area (9.6m SqKm) 2nd biggest economy of the world after USA 3rd biggest technological advance economy after USA & JAPAN PRC is a single-party state governed by the Communist Party of China Capital city: Beijing 22 Provinces, 5 autonomous regions, 4 direct-controlled municipalities , 2 mostly self-governing special administrative regions (Hong Kong and Macau)

FACTS & FIGURES ABOUT CHINA

After introduction of economic reforms in 1978
World's fastest-growing economy (on average more than 10.5%) World's largest exporter and second-largest importer of goods World's largest standing army (2.3Million), with the second-largest defense budget ($129Billions) Permanent member of the U.N. Security Council since 1971 with BIG FIVE (US, CHINA, UK, RUSSIA, FRANCE) GDP - $7.3 trillion in 2011 Per capita income - $5,413 (90th) in 2011 Largest FDI in world- $115billion in 2011 30 million private businesses 61 Chinese companies were listed in the Fortune Global 500

FACTS & FIGURES ABOUT CHINA

World's second-highest number of billionaires- 271 (2010) $ 100B investment in scientific research and development in 2011 alone In 2009,produced over 10,000 Ph.D. engineering graduates, and 500,000 BSc graduates, more than any other country World's second-largest publisher of scientific papers after USA Produced 121,500 in 2010 alone, including 5,200 in leading international scientific journals. Largest num of Cell-phone users in China (1 billion) Also internet & broad band users

FACTS & FIGURES ABOUT CHINA

Literacy rate 92% (age above 15) Unemployment rate 6.5% Inflation rate 5.5% Urban population 47% %
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The mechanism of pushing firms to operate efficiently and create value", designed "to prevent potential exploitation of outside investors, particularly shareholders, by corporate insiders, such as the management".
Professor TJ Wong (City University of Hong Kong )

CORPORATE GOVERNANCE

A. Traditional Model (1950s to 1984)

The SOE has evolved in China from a model in which the State
held all property ownership and managerial rights SOEs were simply referred to as "factories" (Gongchang) The traditional model of SOE governance could also be referred to as the State-ownership model Also called the State-owned and managed model State holds all ownership and managerial rights under TM State ownership is superior to collective ownership & individual ownership State is responsible for the needs and wants of public under this model It was used to protect socialism in China

Traditionally, the production of goods and services in China has been conducted by State-owned enterprises (SOEs)

TRADITIONAL MODELS CORPORATE GOVERNANCE

The SOE executives were required to fulfill the production plans of the government The governance structure of SOEs was an integral part of the general governmental framework SOE executives were appointed and dismissed by government agencies Executives enjoyed the same political and economic treatment as government officials did Executives were responsible to government agencies. Executives achievements were not evaluated by the enterprises' financial performance Employees were labors of Govt: for food, shelter, medication etc

DRAWBACKS OF TRAD: MODEL

Depressed growth of private sector Depressed economic growth Deprived SOEs of economic and legal independence because working under GOVT: orders SOEs were working to meet orders of government not for profits Unfortunately, most SOEs were static and uncompetitive.

B. Transitional Model (1984 to 1993)

Contracting Model.

B. Transitional Model (1984 to 1993)

Transitional model of SOE governance is also referred to as the State-creditor's rights model or the contracting model Reforms to encourage SOEs to expand production and earn profits The goal of the reform was to make SOEs responsible for their own gains and losses in the market SOEs should become legal persons that enjoy full management authority and full responsibility for their own profits and losses Separation between the State ownership and the SOE management rights The property of the enterprise shall be owned by the whole people (equivalent to the notation of "State")

TRANSITIONAL MODEL

Industrial Enterprises Law of China was adopted in1988 (Quanmin Suoyou Zhigonge Qiye Fa) (SOEs Law) Three silent features of LAW First, the factory director (manager) assumes overall responsibility for management of the enterprise Second, the Law provides that the local organization of the Chinese Communist Party guarantees and supervises the implementation of the Party's and States guiding principles and policies Third, the enterprise is allowed, through the employees' congress and other forms, to practice democratic management

TRANSITIONAL MODELS CORPORATE GOVERNANCE

Govt: is principle or govern body while Executive as an agent Trade unions are permitted to represent and safeguard the employees interests Employees may organize and participate in democratic management and supervision Two parties to the contract are the government agency and the SOEs CEO. The CEOs of SOEs are selected through a competitive process by Govt: CEO have to pay a fixed portion of amount (liable) and a small portion of profit to Government as well Fixed amount still if not profits earned by CEO Remaining profits can be used by CEO freely

PROBLEMS WITH TRANSITIONAL MODEL

Difficult to identify a reasonable minimum amount of profit for the SOEs to pay to the State They were unable to pay the fixed amounts required to the State when they sustained losses Third, there was a fair amount of exploitation of the assets of SOEs for personal use Finally, too little SOE profits were retained for development purposes, leaving insufficient resources for future expansion

SO TO FIX ALL THESE PROBS THEY NEED SOMETHING NEW

MODERN CORPORATE MODEL

market economy

MODERN CORPORATE MODEL (1993 -PRESENT)

Main goal of SOE reform was to "set up [a modern corporate system] in the majority of backbone large and medium-sized SOEs The corporations in China that were restructured from traditional SOEs are referred to as SOE corporatized corporations Now SOE-corporatized corporations includes more well-defined shareholder rights than its traditional counterpart and promotes increased efficiency and accountability The Corporate Law of 1993 and Securities Law of 1998, came into being Provides solid legal foundations for the transformation of SOEs into different business corporations, including

Wholly State-owned corporations Closely held corporations Publicly held corporations

MAIN POINTS FOR CHINA CORPORATE GOVERNANCE

Based on the data from the CSRC, tradable shares on average accounted for 33 percent of total shares in 2000 Companies that have issued H shares or B shares are subject to stricter legal rules. However, an active corporate control market does not exist in China More than one-third of the CEOs are also the chairmen of the board of directors Almost 50 percent of the directors are appointed by statecontrolling owners, and another 30 percent are affiliated with various layers of governmental agencies 3 Types of Shares: state shares, legal person shares and public shares Only the shares held by the public are tradable

CORPORATE GOVERNANCE IN MARKET MODEL

1. 2. 3. 4. 5.
Corporate Law & Securities Law , a corporations Memorandum of Associations (Gongsi Zhangcheng) plays an active role in designing the corporation's governance structure Corporate Law requires corporations to form three statutory and indispensable corporate governing bodies THE SHAREHOLDERS, acting as a body at the general meeting THE BOARD OF DIRECTORS THE BOARD OF SUPERVISORS THE CHAIR OF BOD THE CEO Last 2 were added later on

CORPORATE GOVERNANCE LAWS & REGULATORY BODIES

China Securities Regulatory Commission "CSRC Shengia Stock Exchange Shenzen Stock Exchange Corporate Law (1993) Securities Law (1998)

CORPORATE GOVERNANCE RANKING OF COUNTRIES

EXPLANATION OF CORPORATE GOVERNANCE

&
CORPORATIONS TYPES ARIF & ZAFAR

CORPORATE & SECURITIES LAWS

In China today, the most important legal sources of corporate governance rules are the laws passed by the National People's Congress (NPC) and its Standing Committee. These laws include
o the Corporate Law of 1993 (Corporate Law) o and the Securities Law of 1998 (Securities Law).

Corporations Memorandum of Associations (Gongsi

Zhangcheng) plays an active role in designing the

corporation's governance structure.

The Chinese Memorandum of Associations is comparable to a document that would combine both the articles of incorporation and the bylaws of an American corporation.

Conti.. LAWS

The Corporate Law requires corporations to form three statutory and indispensable corporate governing bodies: (1) the shareholders, acting as a body at the general meeting; (2) the board of directors; and (3) the board of supervisors. In addition, the Corporate Law introduced two new statutory corporate positions: the Chair of the board of directors (Chair) and the CEO

Chinese systems of corporate governance.

o There is no hierarchical relationship between the board of directors and the board of supervisors, and both directors and supervisors are appointed by, and may be dismissed by, shareholder actions.

TYPES OF CORPORATIONS & RELATING CG

Chinese corporate law recognizes only two types of corporations Each have own and separate set-up of Governances

1. CLOSELY HELD CORPORATIONS

o (Youxian Zeren Gongsi)

2. PUBLICALY HELD CORPORATIONS

o (Gufen Youxian Gongsi)

1. Closely Held Corporations

Corporation with "few shareholders" and of "small capital size" is not required to set up a board of directors, but rather is only required to have a single executive director who may serve concurrently as the manager. In addition, this type of corporation does not need an entire board of supervisors, If a shareholder wishes to assign his capital contribution to non-shareholders, however, the consent of greater than 50% of the total number of shareholders is required. The Corporate Law has different rules for closely held corporations that are Wholly owned by the State and for those that include a Foreign investor.

a. Wholly State-Owned Corporations

A wholly State-owned corporation is defined as "a limited liability corporation invested and established solely by the State-authorized investment institutions or government agencies
The Corporate Law as originally enacted only required two corporate bodies in wholly State-owned corporations: the board of directors and the CEO. Because there are no general meetings of shareholders and no boards of supervisors in stateowned corporations.

b. Foreign-Invested Corporations

Another special provision applicable to closely held corporations concerns those that are foreigninvested. In China, there are three types of foreign-invested corporations: Wholly foreign-invested enterprises. Chinese-foreign equity joint ventures. Chinese-foreign contractual joint ventures.

2. Publicly Held Corporations

A publicly held corporation is also called a joint stock limited company (Gufen Youxian Gongsi). The Corporate Law defines a publicly held corporation as a corporation in which the "total capital shall be divided into equal shares Shareholders shall assume liability towards the company to the extent of their respective shareholdings, and the corporation shall be liable for its debts to the extent of all its assets. Publicly held corporations can be categorized into
o listed corporations and non-listed corporations

Publicly held corporations are governed by both the Corporate Law and the Securities Law.

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