Song, Xiaolei (2016) Corporate governance : a legal study on the reform of state- owned enterprises in China. PhD Thesis. SOAS, University of London. http://eprints.soas.ac.uk/id/eprint/23583 Copyright © and Moral Rights for this PhD Thesis are retained by the author and/or other copyright owners. A copy can be downloaded for personal non‐commercial research or study, without prior permission or charge. This PhD Thesis cannot be reproduced or quoted extensively from without first obtaining permission in writing from the copyright holder/s. The content must not be changed in any way or sold commercially in any format or medium without the formal permission of the copyright holders. When referring to this PhD Thesis, full bibliographic details including the author, title, awarding institution and date of the PhD Thesis must be given e.g. AUTHOR (year of submission) "Full PhD Thesis title", name of the School or Department, PhD PhD Thesis, pagination. Corporate Governance: A Legal Study on the Reform of State-Owned Enterprises in China Song Xiaolei [email protected] Supervisory Committee First Supervisor: Dr. Sanzhu Zhu Second Supervisor: Dr Carol G. S. Tan Third Supervisor: Prof. Peter Muchlinski Faculty of Law and Social Science School of Oriental and African Studies (SOAS) University of London Declaration for SOAS PhD thesis I have read and understood regulation 17.9 of the Regulations for students of the SOAS, University of London concerning plagiarism. I undertake that all the material presented for examination is my own work and has not been written for me, in whole or in part, by any other person. I also undertake that any quotation or paraphrase from the published or unpublished work of another person has been duly acknowledged in the work which I present for examination. Signed: ____________________________ Date: _________________28-07-2016 Acknowledgments My greatest thanks must go to my doctoral dissertation supervisor, Dr. Sanzhu Zhu for his kind and patient guidance, as well as for his persistent and consistent support during my doctoral studies. With his patience and understanding of my work, he has helped in identifying any problems and given sufficient suggestions and meaningful solutions. This thesis would not have seen the light of the day without his invaluable comments and continued support. I thank Dr Carol G. S. Tan for her immense amount of supervision and helpful suggestions for the thesis during my research and studies. And I also appreciate her support through her capacity as a female friend. I thank Prof. Peter Muchlinski for his help and time in supervising my thesis. I thank my friends Dr. SONG Jiashi and Dr. YANG Shuai and some senior executives of Chinese SOEs who provided plenty of helpful and important comments and suggestions. I thank the faculty members of SOAS Law School for their help and stimulating conversations. Moreover, this thesis would not have been possible without the invaluable contribution of my fellow doctoral students, especially ZHANG Lei and XIE Jiaqi, through their challenging but constructive conversations and support. I would like to thank my beloved parents SONG Zhanhai and GUO Shuqiu who offered financial, moral and emotional support throughout the whole period of my 1 study. Their support and patient encouragements have tremendously helped in accomplishing this study. I would like to thank my husband MA Chao, who gave me endless encouragement and supports during the past 3 years. Finally, my thanks equally go to all my friends and family members who have given me various kinds of support throughout the duration of this study. Thanks to all the friends who helped me to get through this tough time of my life. And best wishes for all of my PhD friends; I hope they can successfully attain their doctorate degree soon. 2 Abstract Corporate governance (CG) has been introduced to China as central to establishing the modern company system. The current Chinese CG principles and legal framework are the results of China having absorbed lessons and copied advanced and matured CG models from other countries. This thesis evaluates the process of CG practice by Chinese State-owned enterprises (SOEs), and concludes that the main issue for Chinese SOEs is not to adopt a fixed model of CG to copy, but to develop a complete and continuous set of institutions that lead to effective CG in the context of China’s economic and social environment. At this transitional stage, what are the significance and the functions of CG in China? And how do these functions applied in reality? During the last decade of practice, what are the achievements and problems of CG in the reform of SOEs in China? What are the future perspectives of Chinese SOEs’ reform? The series of questions above describe the dynamic of this thesis. In discussing the phenomenon of CG in the reform of SOEs, this thesis reviews the debates about the role of CG in China’s SOEs reform. Furthermore, this thesis will analyze the tensions concerning CG in the process of SOEs reform, in relation to ownership, boards of directors, shareholders and boards of supervisors. Moreover, explorations taking a legal approach are made in this thesis in order to find and fill the gap between theory and practice about CG of SOEs in China. The research into the CG of Chinese SOEs is a challenging and stimulating field. The 3 aim of this thesis is to provide an analysis of the CG of Chinese SOEs and offer some suggestions for improvement to make the development of CG of Chinese SOEs more attractive to experts and scholars, so as to better guide the practice. 4 Contents Acknowledgments.......................................................................................................... 1 Abstract .......................................................................................................................... 3 Chinese Terms ................................................................................................................ 7 Abbreviations ................................................................................................................. 8 List of Legislation and International Agreements .......................................................... 9 Chapter 1: Introduction ................................................................................................ 18 1.1 Definition ....................................................................................................... 20 1.1.1 The Concept of Corporate Governance .............................................. 20 1.1.2 The Concept of SOEs .......................................................................... 30 1.1.3 Corporate Governance of SOEs .......................................................... 32 1.2 Research Questions ........................................................................................ 34 1.3 Methodology .................................................................................................. 36 1.3.1 Documentation Analysis ..................................................................... 36 1.3.2 Fieldwork and Case Studies Methods ................................................. 38 1.3.3 Qualitative Research Strategy ............................................................. 41 1.4 Theoretical Approaches and Literature Review ............................................. 43 1.4.1 Reform of SOEs in China ................................................................... 47 1.4.2 CG of SOEs......................................................................................... 55 1.5 Outline and Overview of Chapters ................................................................ 62 1.6 Contributions made by this Thesis ................................................................. 65 Chapter 2: The Development of Corporate Governance of State-Owned Enterprises in China ........................................................................................................................ 67 2.1 The Background of Corporate Governance of State-Owned Enterprise in China .................................................................................................................... 69 2.1.1 Economic Reform and its Impacts on State-owned Enterprises Reform ...................................................................................................................... 70 2.1.2 Different Targets of SOEs Reform ...................................................... 78 2.2 CG at the Transition Stage ............................................................................. 96 Chapter 3: Transformation of the Owner and Control of SOEs in the State-Owned Enterprise Reform ........................................................................................................ 99 3.1 Expanding the SOEs’ Autonomy (Kuoda Qiye Zizhuquan) ........................ 100 3.2 State Enterprises Pay Taxes Instead of Turning over their Profit to the State (Ligaishui) .......................................................................................................... 104 3.3 The Reform of Shareholding System (Gufenzhi Gaige) in Chinese State-Owned Enterprises Reform....................................................................... 106 3.4 'Grasp the Large and Free the Small' (Zhuada Fangxiao) ........................... 116 3.5 Debt-into-Equity Reform (Zhai Zhuan Gu) ................................................. 119 3.6 The Owner (shareholder) and Control of the SOEs under the Supervision