In recent years, some foreign institutions and organizations have cast doubt on the corporate governance of Chinese businesses. They have serious misunderstandings about the role of Party (Communist Party of China) organizations in particular. Based on company rules and organizational structures, China’s privately run companies have long been acting as independent entities that operate voluntarily and effectively according to market-oriented principles, and the Party organizations have not directly interfered in their operations.
The Party’s leadership has long played a central role in state-owned enterprises (SOEs) and the integration of the Party’s leadership into each element of corporate governance is the most distinct feature of our corporate governance.
Improving corporate governance is a necessary effort for deeper SOE reform. Party organizations are also supposed to better play their part and for there to be mutual integration. Judging from global theoretical research and practical explorations, there are neither universal standard patterns for corporate governance, nor a “best fit” that can be completely copied and pasted.
Chinese companies are aligned with internationally adopted general standards when it comes to corporate governance principles and frameworks. A communiqué was issued at the G20 Hangzhou summit in 2016, voicing clear support for principles of corporate governance championed by the G20 and OECD. Under the general principles and framework, some additions and improvements, made in accordance with specific national conditions, comply with international common practices.
The establishment of a modern enterprise system can be entirely compatible with upholding the Party’s leadership. Based on a scientific and effective system of checks and balances, general meetings of shareholders, boards of directors, the management, and boards of supervisors are supposed to fully play their part. Party committees, for their part, are mainly responsible for holding the steering wheel, getting an overall grasp on the situation, and ensuring implementation. They are expected to play a leading role in implementing state laws, foster a healthy corporate culture and undertake social responsibilities, while operational decisions still fall under the purview of the board of directors.
On the matter of stakeholder protection, good corporate governance requires full consideration to be given to the legitimate interests of shareholders, employees, clients, communities, creditors and both upstream and downward segments of supply chains. The Party has also long stuck to the fundamental tenet of serving the people. It has maintained close ties with the masses and has good mobilizing capabilities, and is therefore capable of better safeguarding each party’s legal rights.
Furthermore, the Party’s leadership has a unique advantage in corporate governance. For example, Party organizations’ upholding collective leadership and superintendence, along with appointments across Party committees, boards of directors and boards of supervisors, can better prevent insider control, manipulation by large shareholders, directors’ failure to adequately perform their duties, and the non-independence of independent directors, among other problems.
Practice proves that corporate governance with Chinese characteristics is completely workable. For instance, the central role assumed by the Party committees at the country’s five largest banks has been given full play. Historical breakthroughs have been made in corporate governance and operating performance, following a raft of measures including stockholding system reform and the introduction of strategic investors and listings, both at home and abroad. Some banks received international awards in corporate governance a dozen years ago. These banks have been highly internationalized, with their networks of shareholders and branches present across the globe. They have also reached global advanced levels as measured by some key operational indicators such as labor productivity, rates of return on investment, the ratio between costs and revenues, capital adequacy ratios, and provision coverage ratios. These also show we’re capable of successfully exploring the prominent corporate governance model with Chinese characteristics, while learning from international experience.
(The article was compiled based on an excerpt from the script of a speech prepared by Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, for the Tsinghua PBCSF Global Finance Forum 2019 held in Beijing over the weekend.)
(In association with Global Times)