Corporate governance reform of listed company in china - Essay Example

In addition, the corporate governance of a company is indispensible in influencing how the company is functioning. According to Development Institute (2005), “the presence of strong governance standards provides better access to capital and aids economic growth.” Thus good corporate governance ascertains that the business operation of a company is transparent and fair and simultaneously enables the controlling authorities to hold companies accountable for their actions in the market. On the contrary, weak corporate governance leads a company towards corruption, mismanagement as well as waste of useful resources (Lin, 2001).

Centre for Financial Market Integrity (2007) mentioned that “Corporate governance is critically important to a country’s economic growth and stability, because it provides the credibility and confidence that is fundamental to capital markets.” Hence, from the discussion it is evident that corporate governance is an important subject for a nation’s economy. The recent history of corporate governance and economic reforms in China has been marked as one of the important phases of the country as it started to focus more on the development of private enterprises and capitalism (Bebchuk and Hamdani, 2009).

Moreover, China also succeeded to align itself with the international economy and has further sought to espouse Western-style administration mechanisms and legal principles pertaining to the function of its companies (Rand Corporation, 2008). The chronological development of the corporate governance in China has passed through four major stages. The first stage was from 1949 to 1983, where state-owned enterprises (SOEs) subjugated the Chinese economy and as a result, the state controlled and commanded almost every economical aspect (Bhagat, Bolton and Romano, 2008).

During this era, the Western-style corporate governance also did not existed in the country. The second stage was from 1984 to 1993. This phase is characterised by commencement of the separation of enterprise and government in China. The Shenzhen Stock Exchange (SZSE) and the Shanghai Stock Exchange (SSE) was also established in this epoch. Alongside this, the China Securities Regulatory Commission (CSRC) was also established as a government body to regulate the stock market. The third stage continued from 1994 to 2005, which is marked by the commencement of trialling the modern enterprise structures.

The company law was also passed which mentioned the responsibilities and rights for the companies operating in China. Despite, the passage of company law, it had a far-reaching affect on the Chinese Economy and corporate governance and as a consequence, the state shareholders enjoyed overwhelming favouritism over single investors (Roe, 2002; Development Institute, 2005). The fourth stage as is currently in progress from 2006 onwards. During this phase corporate governance has witnessed colossal growths in China.

It encompassed legislation that was aimed to form equilibrium of the power asymmetry among the individual or single shareholders and state shareholders. The current corporate governance system of china lacks credibility. This can be said from the fact that many of the Chinese companies are not aligning to the standard policies and regulations of the business as well as government