Foreword by Janet Yellen
Party Building or Noisy Signaling? The Contours of Political Conformity in Chinese Corporate Governance
In 2015, as part of a program to reform China’s state-owned enterprises (SOEs), Guiding Opinions were issued requiring SOEs to amend their corporate charters to formalize and elevate the leadership role of the Chinese Communist Party in their corporate governance. We examine the patterns of “party-building” (dangjian) adoptions in the four-year period from 2015-18. Consistent with prior theoretical predictions, not all SOEs abided by the Guiding Opinions, suggesting the limits of political conformity among Chinese firms. Also consistent with prior theoretical predictions, although privately owned enterprises (POEs) were not subject to the Guiding Opinions, a significant number of POEs, particularly large firms, also amended their charters.
The model provisions on the party’s role in corporate governance circulated pursuant to the Guiding Opinions can be divided into three groups: symbolic, decision-oriented and personnel-oriented. We find wide variation in the pattern of adoptions. SOEs have not uniformly adopted the entire panoply of recommended provisions, further indicating the limits of political conformity in the state sector. SOEs that cross-list on Hong Kong Stock Exchange, in particular, adopt less politically intrusive provisions than others. POEs are far more likely to adopt symbolic provisions than decision-oriented and personnel-oriented provisions, suggesting that the amendments are undertaken to signal fealty to the party without changing substantive corporate governance practices. We conclude by exploring a number of far-reaching implications for Chinese corporate governance raised by the party-building campaign and the wide variety of responses to it by Chinese firms of all ownership types.
Written by: Yu-Hsin Lin, School of Law, City University of Hong Kong and Curtis J. Milhaupt, Stanford Law School
Yu-Hsin Lin is an Assistant Professor at City University of Hong Kong, School of Law. Her research interests focus on empirical and economic analysis of corporate law and capital markets regulation. She engages widely on cutting-edge corporate governance issues in controlled firms and state-owned enterprises, including dual-class shares, political compliance, shareholder activism, anti-takeovers, board independence and securities class action. She speaks regularly at international academic conferences and has been the referee at leading law and finance journals. Dr. Lin holds a J.S.D. degree from Stanford Law School, where she was appointed as the John M. Olin Fellow in Law and Economics. She had also been a visiting professor at Radzyner Law School, IDC Herzliya, Israel and visiting scholar at Harvard Law School. She has published with leading academic journals and has also been interviewed by major media, including The Economist and Bloomberg, as a corporate law expert.
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