Critically evaluate the reform and governance of China's national oil companies - Essay Example

The Deng Xiaoping led economic reforms that instituted capitalist market principles into China were clustered into two categories of which the first category to be implemented during the 1070s and the early part of the 1980s involved granting permission to entrepreneurs to set-up their own businesses, allowing foreign investors into the country, and de-collectivization of agriculture (Naughton and Yang, 2004). The second category of reforms that were implemented in during the late 1980s and 1990s involved eradication of protectionist policies, price controls, and privatization as well as contracting out of industries that were largely state-owned (Rene, 2013).

However, Singh et al. (2013) noted that despite these reforms, the Chinese government still retained its monopoly on key sectors such as the petroleum and banking industry. This present paper is based on the petroleum industry and in particular, it seeks to critically evaluate the reforms that have so far being implemented within the industry and the general governance of China’s national oil companies. The discussion will focus on three critical areas that include the relationship between the ownership and the corporate governance.

Secondly, the regulatory environment of the China’s oil industry and the influences of the nomenklatura system on China’s national oil companies. The relationship between the ownership and corporate governance of China’s national oil companies A discussion about the relationship between the ownership and corporate governance of China’s national oil companies necessitate the analysis of agency theory. In the studies by Chen (2009), agency theory has been described as a concept that explains the relationship that exists between an agent and a business.

Leng (2009) on his part wrote that the theory explains the relationship between two parties where one is the principal while the other is an agent working on behalf of a principal. In the business context, the common forms of agency relationship normally exist between stockholders and the managers of the business organization, whereby the managers are acting on behalf the stockholder, or owners of the business. To begin with, Singh et al. (2013) stated that the reforms instituted in the Chinese petroleum industry, which is dominated by three key players that include the China National Petroleum Corporation (Petro China), China Petroleum & Chemical Corporation (Sinopec), and the China National Offshore Oil Corporation.

The reforms were largely aimed at ensuring that the corporate governance within the corporations was sufficient to make the corporations highly successful. Leng (2009) on his part wrote that the reforms were geared towards introducing a new form of corporate governance that was capable of providing adequate incentives to the managers to ensure that they do their best to make the corporations successful. Secondly, to discourage them from misappropriating assets, and to have a legal framework to eject corporate managers who have proven to be incompetent.

Leng (2009) wrote that in modern corporations there is a well defined distinction between control and ownership, and even the distribution of equity among investors. In regards to corporate governance, Thomas (2004) described it as an institutional arrangement whereby