Corporate governance which seemed scarcely existed before the 1990s,nowadays attracts increasingly more attention and develops quickly over last two decades, especially after the crash of giants such as Barings Bank and Enron as well as many other corporate failings. It is also the case in China in light of the scandals are more seriously and prevailing-it had been reported that from 1992 to 2004, there were 200 scandals happened among China's 1200 listed companies, the proportion was about 16% compared to 1% in the US during the same period. [2] Taking recent financial scandals such as Oriental Century Corporation [3] , Shanghai AJ Corporation [4] and Sichuan Changhong Electric Corporation [5] for instance, these can be largely regarded as the results from the deficiencies under the current corporate governance.
However, improving corporate governance to prevent future scandals or even failings and ameliorate companies' performance is not an easy task in China. In order to provide clear and comprehensive understanding of obstacles which confront the further improvement of corporate governance, this essay will through institutional/structural, political/ideological and cultural/historical angles [6] to discuss these obstacles.
Specifically, the ownership structure, non-tradable shares and the supervising system will be firstly examined because not only they give rise to many problems including frequent related party transaction, severe agency problem, dependent boards, unaccountable management, weak position of minority shareholders, powerless (or incompetent) supervisors and so forth, but also cause the striking and severe problem being hardly overcome since the existing of these institutional/structural obstacles. Meanwhile considering huge influence of politics, in the second section, the political and ideological obstacles including party committee of the company, administrative rank and exchange mechanism of so called cadres as well as the socialist ideology will be analyzed in detail to help comprehend why certain institution or structure so formed and why certain provisions in law so drafted. Then the essay will pay attention on the historical and cultural aspect to continue exploring the deep obstacles for improving corporate governance. The conception of unit, tradition of harmony and subtle interpersonal relationship are all with Chinese characteristic and influenced many things such as independence and supervision under the governance context, therefore these ingredients will be talked over respectively in the third section.
I.Institutional and Structural Obstacles
First of all, certain current institution and structure can be seem as the most direct obstacles to further improve the level of corporate governance. This section will start form the ownership structure to explore the existing problems progressively and analyze how these problems impede the further development of corporate governance.
1. Highly Concentrated Ownership Structure
The primary obstacle with regard to the current institution is the highly concentrated ownership structure. [7] Since historically most large companies are transformed from original State-Owned Enterprises (SOEs), [8] the State now still holds the majority shares after SOEs change into company form. As empirical dates exhibit, on average the single largest owner held 36% shares among all listed companies [9] and 81.6% companies were directly or indirectly controlled by the State. [10] Many negative aspects are generated by such ownership structure, particularly, it put the State into the dominant role of most large companies and let the State be a controlling shareholder.
1.1 State as the Controlling Shareholder
As the word "controlling" shows, a controlling shareholder [11] is much more than a majority shareholder, she has more power in a company and can influence the company to a large degree.
Take two Chinese leading listed companies-Baosteel Corporation and Shanghai Mechanical and Electrical Industry Corporation for example, on 31 December 2008, 73.97% shares of Baosteel Corporation are held by Baosteel Group Corporation, which is a SOE. [12] Likewise, 47.28% shares of Shanghai Mechanical and Electrical Industry Corporation are held Shanghai Electric Group Corporation, namely a state shareholder, compare to the second largest shareholder Shanghai Green Island Investment Management Corporation who has only 1.53% at the end of 2008. [13] From a macro view, the official reports showed that 51% shares held by state. [14] Obviously, the State through various means to own majority shares usually over 50% or a little less than 50% but large enough to exert a powerful influence on shareholders' general meeting and so forth.
Meanwhile, electing or changing a director as well as deciding her compensation is entirely determined by shareholders' general meeting according to Article 38(2) of China's Company Law [15] . This means since unlike UK for example, there is no nomination committee and remuneration committee where the non-executive directors held a dominant role in China, the controlling shareholder has a final say on the appointment and compensation of directors. Then not surprisingly directors have to do the work according to the controlling shareholder in order to keep the job and get a well pay.
However, it must be born in mind that investors buying shares issued by companies to become equity investors instead of simply lending to companies to be debt investors is because not only do they believe the return is more attractive but more importantly they wish to receive votes rather than fixed profits. [16] Question generates under the current context, it seems these investors as minority shareholders are hard to make their voice loud enough. Nonetheless, it is arguable that "cumulative vote" might change this to some extent. In January 2001, China Securities Regulatory Commission (CSRC) promulgated Code of Corporate Governance for Listed Companies in China which first officially involves the cumulative voting system [17] , and then in October 2005 the new Company Law affirmed this cumulative voting system in Art.106, which States:
When the shareholders' meeting elects directors or supervisors, it may, according to the articles of association or resolution of the shareholders' meeting, adopt a cumulative voting system. [18]
Although it seems theoretically the minority shareholders could elect their "own directors" to represent their interests if the company has adopted such cumulative voting system in its articles or chosen as resolution, in practice, it can be almost ignored. Just like the example of Shanghai Mechanical and Electrical Industry Corporation mentioned above, the second largest shareholder has 1.53% shares far less than the majority shareholder who holds 47.28%. The gap might not be so wide in other companies, but it is normal the largest shareholder has 10 or 20 times more than the second largest shareholder. But minority shareholders need have 10% or more shares in order to "win a seat". [19] Therefore, in fact only a few companies' minority shareholders have their 'own directors'. Even so, considering the final decision of promotion and remuneration are controlled by the majority rule, the tangible and intangible influence from the controlling shareholder cannot be overlooked. Thus, unfortunately, directors and the board are de facto acting as the agent of the controlling shareholder rather than the company as a whole. Moreover, as observed by some Chinese scholars that there is no provision of preference shares under current system, [20] this means minority shareholders cannot seek special right of veto to prevent the controlling shareholder abusing its dominant power.
Some may argue that in certain industry "the interests of the controlling shareholder are consistent with those of the company and the minority shareholders". [21] It is ridicules logic since the company is an independent legal entity and has its own interest, directors of the board should be acting as the agent of the company rather than the majority shareholders. Although sometimes the interest of the company and majority might be same, [22] there is still a legal difference prevent the two dissimilar concept being mixed. The corporate personality means, the interest of the company as whole cannot substituted by any other forms of interests.
1.2 Related Party Transaction
One of the worst outcome of State as the controlling shareholder is the related party transaction [23] which means the controlling shareholders use their dominant role to make individual profits through such transaction, for example, sell in a low price and buy in a high price with related party. And until now the controlling shareholder continues abusing related party transactions. [24]
This is most exemplified by the listed companies. Because as mentioned above most listed companies in China corporatized from the original SOEs, today's listed companies are usually just one of the profitable departments or branches of the large SOEs, so most of them have a parent SOE and keep close relationship with them. For those subsidiary listed companies there is no choice but to continue to deal with their parent SOEs, on one hand a parent SOE generally owns necessary infrastructure and resource, and more importantly the "parent" is usually the controlling shareholder and has the authority to appoint directors and senior managers of its subsidiary company.
Clearly, such governance structure enabled dominant shareholders to transfer interests and make related party transaction at the expense of small and medium sized shareholders. [25] Following the official dates, for instance in 2006, 35% of all 1377 listed companies had misappropriated 48 billion RMB to their parent SOEs, [26] and corruption then easily occurs during such misappropriation. Furthermore, it has been also criticized for reducing the competition by such irrational transactions which otherwise could promote the company to disclose information and improve the internal governance mechanism. [27] Fortunately, policymakers in China had noted this serve problem of related party transactions, thereby Art.125 was inserted in the new Company Law, which states:
Where any of the directors has any relationship with the enterprise involved in the matter to be discussed at the meeting of the board of directors, he shall not vote on this resolution, nor may he vote on behalf of any other person. [28]
However, this provision is difficult to implement in practice due to a dearth of fully "independent" directors as discussed above and controlling shareholder can utilize various other means to achieve the related party transaction. In addition, it is not easy to discover such transaction on ground of low disclosure quality and suppose if a third party is involved instead of transacted with related party directly, nobody except the insiders know what happens.
1.3 Agency Problem
Regarding to agency problem, it is often argued that the concentrated ownership structure can lower agency costs [29] between the managers (namely, agent) and shareholders (namely, principal) since the majority shareholders would be more active in monitoring the management. [30]
However, the controlling shareholder "State" is an abstract subject. Just as Clarke observed, although the State could be said own these majority shares, it must operate through human agents. [31] The question is who can and should represent State to exert such dominant right as a shareholder? Take the listed companies for instance, there are prima facie two ways: first through the governmental body i.e. State-owned Assets Supervision and Administration Commission of the State Council (SASAC) [32] and correspondent Commissions in the provincial and city level; second, through SOEs to perform the right as a shareholder in the listed company. Lin, Liu and Zhang pointed out that the officials in SASAC are indeed "second-order agents". [33] In other words, most Chinese large companies especially listed companies, their controlling shareholder is an intermediate institution or company chosen to act on behalf of the ultimate owner i.e. the State. [34]
Thus, one inevitable deduction is that in light of the abstract nature of State it needs SASAC or SOEs to represent it to act as a shareholder in the company, and indeed officials of SASAC or cadres of SOEs will be delegated to execute the specific rights such as monitor the directors and senior managers in listed companies. However, as such officials and cadres are not the real owner of the listed company, they would not bear the loss if the company performs badly or enjoy the relating profit like a real owner if the business runs successfully, as a result one new agency problem generates. Therefore, although on the surface State as the controlling shareholder might more actively monitor the management to lower agency problem, it creates new agency problems between State and its agency, then the agency and its delegates.
A further problem generates from the State-owned property belonging to every Chinese people in name. Many scholars commented that belonging to "the whole people" equals belonging to nobody. [35] Such absence of ultimate principle leads to nobody will bear the ultimate outcome of risk or loss, so the supervisory chain misses one key link and make the situation worse.
2. Non-tradable Shares
Another distinctive characteristic in China is that a majority of stocks cannot be transacted on the stock market, and it gave rise to serious problems. Empirical evidence shows that nearly more than 60% of the outstanding shares are non-tradable since the State shares and legal person shares are banned from trading on the stock market. [36]
The primary problem of the non-tradable shares is letting the interest of the controlling shareholder "immutable". [37] Before discussing in detail, it is helpful to make clear that shares in China's stock market classified into two categories i.e. tradable and non-tradable shares, the latter category includes State shares [38] and legal person shares [39] , each has approximately 1/3 of all shares respectively. Obviously, nearly 2/3 of all shares cannot be transferable in stoke market, and thereby the State as the controlling shareholder either by directly owns the shares or through legal person [40] indirectly owns the shares is entrenched and almost unchangeable. This means the minority shareholder or outsiders can never through transaction in the stoke market to get control of the company since only about 1/3 shares are issued to the public market with the other 2/3 shares firmly in the hand of the State. As a result, management gradually understands they will not lose jobs even if they run a company unsuccessfully in view of the company would rarely under the risk of being taken over. Instead the paramount job for these directors and senior managers is to satisfy their controlling shareholder in order to keep the position and get a generous compensation. It has been also argued that since the nature of non-transferability, the controlling shareholders with non-tradable shares do not care the fluctuation of price of shares in the stoke market and such situation is exacerbated by the fact that the State as the controlling shareholder sometimes uses its dominant control for some political consideration other than maximized profit. [41]
The huge amount of non-tradable shares would definitely diminish the liquidity of the secondary market and lower its efficiency of operating. [42] It means that the market as an invisible hand cannot fully play its role, for example take over is no longer a deterrent for management since the potential bidder cannot through purchasing public shares to get control of the target company. Moreover, on the ground of the tradable shares can by no means form a majority, the value of these shares is decreased invisibly. In other words, the minority shareholders or say public shareholders can never become a majority shareholder one day and get control of the company, their shares worth less than the shares in hand of controlling shareholders.
However, although the non-tradable shares cannot be traded in the stock market they could be transferred off-market privately. It is because that there is no market price for these shares, arbitrary is often the case. Indeed following Liu and Sun the price of these non-tradable shares are usually far less that of tradable shares. [43]
Recently, some argued that with the implementation of "split share structure reform", the non-tradable shares would finally "come full circle" with "complete privatization of the listed companies. [44] This is problematic. Firstly Art. 2 of Administrative Measures on the Split Share Structure Reform of Listed Companies expressly states:
The split share structure reform is herein defined as the process to eliminate the discrepancies in the A-share transfer system via a negotiation mechanism to balance the interests of non-tradable shareholders and tradable shareholders. [45]
It is clearly not for "full circulation", rather, it is aimed to protect non-tradable shareholders. Second, it is just a departmental regulation, which means it has no binding effect. In addition, it has been 5 years since the promulgation, but no such material change happens or is going to happen, just like a study by CSRC showed even in 2008, 8 of the 10 largest companies had fewer than 10% tradable shares and the other 2 had less than 1/3 tradable shares. [46]
Take one step back, presuming even these non-tradable shares can be freely transferred in the stock markets one day, [47] the situation of concentration of the State ownership will not be shaken. This is because on one hand from economic views there are huge incentives to control the corporate chains [48] and on the other hand from political view [49] maintaining such controlling ownership in those listed companies is seemed as one policy of the State, [50] just as the former general sectary of CPCCC and President Jiang Zemin emphasized "being a socialist country, China must keep public ownership as the foundation of its socialist economic system". [51]
3. Ineffective Supervisory System
Generally speaking, supervisory system could be divided into internal and external one. Unfortunately, both systems run inefficiently, and become obstacles for further improving corporate governance. This subsection will discuss the problems existing in board of supervisors, independent directors and apathetic minority shareholders as the internal supervising mechanism on one hand as well as the external one such as the CSRC on the other hand.
3.1 Board of Supervisors
Influenced by German and Japanese style two-tier board model, Art.52, 118 of the Company Law requires companies to establish a board of supervisors (BOS), [52] and it shall include shareholders' representatives and employees' representatives. As observed by Andrews and Tomasic, the BOS has the potential to the interests of these groups in the company. [53]
BOS can and should demand any director or senior executive to "make corrections if his act has injured the interests of the company" according to Art.54(3). However, unlike the German model which the supervisory board has the power to appoint and dismiss managing directors, the BOS in China could only "bring forward proposals on the removal" [54] . Just as Clarke criticized, the Chinese Legislators ignore dismissing directors as the "ultimate weapon" of the BOS, leading supervisors' other power meaningless. [55] Consequently, the supervisory power of BOS in China is fairly soft since neither does BOS have the power to hire or fire director as in the German case. [56]
Also noteworthy is that although the law sets the percentage of the employees' representatives "shall account for not less than 1/3 of all the supervisors", [57] it is not uncommon shareholders' representatives prevail in BOS. In other words, considering nomination and remuneration procedural, the BOS is under the manipulation of the controlling shareholder to a large degree. Then there is no reason for the members of BOS too critical as long as the management obeys controlling shareholder's instruction or serves for the maximized profit for controlling shareholder (regardless of whether it is good for the company as a whole).
In addition, members of BOS generally lack of experience, incentive and information, [58] which in turn impedes them perform competently. Take company information for instance, the members of BOS could hardly get the financial affairs in order to have a review, [59] so how to supervisee effectively?
3.2 Independent Director
Noting the inefficient system of BOS, independent director is required in listed companies [60] , it is anticipated to improve the level of supervision over corporate malfeasance and play the monitoring role which BOS is unable to play. [61]
However, problems are raised during transplanting this system from Anglo-American corporate system. First, the "independence" of independent directors is questionable. Andrews and Tomasic indicated that independent directors need the support from the controlling shareholder in order to be elected and to remain as a director. [62] It is true because the controlling shareholder can through its dominant role in shareholders' general meeting to control the right of nomination and remuneration of all directors certainly including independent ones. [63] Therefore, independent directors cannot be critical enough unless they do not want to stay in the company tomorrow. Let along the reality that many independent directors are invited by the directors or senior managers from their friends. [64] Second, the independent director in China is criticized more like a "vase". Most independent directors in China are academics and governmental officials, both are lack of experience, specific knowledge and energy to commit themselves into corporate governance issues. So it is not overstatement to say the independent director serves more on its decorative feature. It has been reported that in those non-listed large companies there are no independent directors in general. [65] It can also be seen that at the moment most listed companies appointing independent directors is just to fulfill the listing requirement.
Furthermore, even an independent director tries to ask hard questions bravely, it seems hardly anything could be changed in light of independent directors are not majority in the board and the law does not empower them special right to be capable of making a voice. The real picture is independent directors are too powerless to make any substantial influence in the company. [66]
Finally, although at the moment since both independent directors and members of the BOS lose their "ultimate weapon" such as the right of dismissing directors during transplant from other jurisdictions and thereby become soft enough to avoid any substantial clashes, it is still worthy to consider the problem of coexistence of independent director system and BOS. Will the overlapping between the two might give rise to the inefficiency or failure of the internal supervising mechanisms? Will it impede further development of corporate governance as observed by academics after both systems run effectively? [67] These questions are worthy to consider.
3.3 Apathetic Minority Shareholders
The weak position of minority shareholders directly leads apathetic and short-term view of their involvement in the company which, in turn, hampers them taking a more active role in corporate governance. [68]
People will not invest in a company unless they feel it would be profitable with growth of this company, and more importantly their money is safe and would not be misappropriated by others. If people lack confidence of the security of their money, no one would like to stay long enough in one company. In addition, minority shareholders gradually find that they can hardly change anything and it is often too costly for them to get the inside information and know what happened between controlling shareholder and management when they prepare to take part in the corporate governance.
Therefore, they tend to be opportunistic and apathetic, just seek for the difference between share price rather than the dividend. It seems in many aspects they act merely as investors instead of owners of the company. In practice, merely 1/10 of all public shareholders take part in the shareholders' general meeting actively. [69] However, such apathy will lead the management more unbridled and unaccountable for these minority shareholders.
3.4 External Supervisory Mechanism
Generally speaking, the current external supervisory mechanism in China is also far from satisfactory. First, official supervising institutions such as CSRC and two Stock Exchanges (namely, Shanghai Stock Exchange and Shenzhen Stock Exchange) due to various factors such as lacking punishment means to those who failure to comply regulations, [70] lacking of authority or sufficient resource [71] as well as having lower administrative rank than their supervisees [72] . Secondly, non-official external supervisors such as auditing companies despite having been empowered by law to review the financial statement of company [73] , but still cannot play their due role as a qualified supervisor owing to a dearth of independence and low level of professional. [74] Finally, the market as an invisible hand also fails to function as a sensible external supervisor since such as takeover and other market methods are ineffective on the ground of current the ownership structure and split share system which analyzed above.
II.Political and Ideological Obstacle
Political Determinants can never be ignored when considering corporate governance, as observed by Roe, "not all efficient structures are political stable" [75] . Particular in China where politics and "class struggle" had been the priority of the whole country for a long history, even now political construction is still one of the governance guidelines. Therefore in order to have in-depth understanding of China's corporate governance, it should recognize the enormous influence by politics and socialist ideology.
The paramount leader Deng Xiaoping on behalf of the Communist Party of China Central Committee (CPCCC) pointed out the "Four Cardinal Principles" in a theoretical convention held in Beijing on March 30, 1979:
First, keep to the socialist road; second, uphold the people's democratic dictatorship; third, uphold the leadership by the Communist Party of China (CPC); fourth, uphold Marxism-Leninism and Mao Zedong Thought. [76]
Of these four principles, both uphold Party's leadership and keep the socialist road are regarded as more important. [77] Until now, these four cardinal principles are seemed as the foundation to build and develop this country.
1. The Party Committee of the Company
After consideration of political aspect, it would be much easier to understand Art.19 of the Company Law, which requires the company to erect Communist Party in line with the CPC's Constitution and shall provide necessary conditions for the activities of the CPC. By the same token, since "uphold the leadership by the CPC" is one fundamental rule, therefore in order to lead a company especially where State has a large stake, the chairman of the board or sometimes the general manager as the key person of the company would be usually at the same the sectary of the party.
Inevitably, the chairman or general manager as a party member needs to obey the instruction from the party. Just as McNally remarked:
Since all corporate decisions are either made by a corporation's party committee or handed down through party channels, the system of internal checks and balances within a corporation envisaged by China's Company Law has failed to take root. [78]
Problem then creates when the purpose of the party is not profit-driven. The priorities of these cadres are to complete economic targets and help the party and government maintain local social and political stability. [79] As a result, the interest of those non-State minority shareholders whose purpose is mainly for profit will be harmed in the name of sacrificing for the "overall situation".
2. The Administrative Rank and the Exchange Mechanism
Another interesting feature in Chinese large and medium sized companies is the chairman and senior executives usually have certain administrative ranks. It has been often criticized by academics that chairmen or senior executives especially in large listed companies may have a higher rank than their supervisors in CSRC or two stock exchanges and thereby it is in many occasions difficult for the officials of CSRC coming to grips with these companies effectively. [80]
It seems the policymakers also have noted this problem. As early as September 2000, the State Council General Office of the State Economic and Trade Commission (SETC) in drafting of the "State-Owned Enterprises to Establish Modern Enterprise System and Strengthen the Management of Basic Standards (Trial)" clearly put forward abolition of corporate administrative ranks. Nearly 10 years passed, however, no material changes have occurred yet. [81] In practice it is still the common procedural-when one appointed as an executive director or senior executive would be issued the appointment letters of the Organization Department of CPC at the same time.
In addition to have an administrative rank, also noteworthy is that the chairmen and senior executives in large companies can be exchanged into officials directly in provisional or central governmental. For example, Wei LiuCheng, the former general manager and the party sectary of China National Offshore Oil Corporation, is transferred to the Party Sectary of Hainan Province; Zhu YanFeng, the former general manager of China FAW Group Corporation, is transferred to the Vice Governor of Jilin Province; Li YiZhong, the former general manager and the party sectary of China Petroleum and Chemical Group Company, was transferred to the Director of State Administration of Work Safety (SAWS) and now is the minister of the Ministry of Industrial and Information Technology. [82] Above just a small epitome, there are much more exchanges between companies and administrations in the middle and lower ranks.
Therefore, considering the higher administrative rank of cadres in the company, the officials in supervising institutions such as CSRC and two stock exchanges cannot be blamed not critical enough even they discover the malfeasance of that company, particularly, it is not unusual these cadres might be exchanged to a governor or other senior official in the government, the supervisors should be always prudent when they deal with those potential superior. As a result, effect of the supervising institutions is compromised to a large extent.
In many occasions regarding the subtle relationship between the cadres of the companies and government (or say CPC), like Miles and He remarked, these cadres maybe more concerned with preserving jobs in their respective jurisdictions than lining the pockets of shareholders with dividends. [83] Since the promotion and their political future are all controlled by CPC, the priority is keeping the pace with the CPC (rather than make the success of the company as a whole) and this in turn let them too powerful to be monitored by supervising institutions.
3. Socialist Ideology
Elaborated by Deng Xiaoping during southern tour in Shenzhen in 1992, "planning" and "market" are merely economic means, and socialism could have market. Leaving aside whether the theory of socialist market comes from orthodox Marxist economic theory, it seems in the foreseeable future the ownership structure will not be changed substantially in order to "keep to the socialist road". Just as Li Rongrong, the chairman and party sectary of SASAC, said "public ownership is the foundation of the socialist market economic system". [84]
In addition, due to the drastic changes in formal Eastern European socialist countries and disintegration of the formal Soviet Union after adopting the "big-bang mass privatization approach" [85] in late 80s and early 90s of last century, CPCCC has emphasized more on the "Four Cardinal Principles". While problems like State as the controlling shareholder influence too much the management of large companies are not secret, from the political view, "stable" outbalances any other factors including economical efficiency. Just like Liu and Sun concluded Chinese government has explicitly pursued the State control of large and medium sized SOEs. [86]
Thus in spite of concentrated state ownership and influence is seemed as a "fundamental weakness" and criticized by many, [87] it is impossible and unacceptable for CPCCC to reduce the control or change the ownership structure of those companies in strategic sectors.
III.Historical and Cultural Obstacle
It is often argued one model cannot be fit for all. This is extremely true in China since corporate governance is imported from western jurisdictions which have a very disparate environment. Thus it is necessary and helpful to include several essential ingredients when analyzing obstacles faced by current China's corporate governance from historical and cultural aspect. The conception of unit, the tradition of harmony and the subtle interpersonal relationship are selected to be discussed in this section.
The Conception of Unit
In the past, due to the immature welfare system, almost every enterprise was seemed as an integrated unit, it is not uncommon at that time one enterprise had its own hospital, schools and so forth. Following Voß and Xia, these SOEs were supplying social security to both employees and their family, [88] and this is also why the State continues pouring money to insolvent SOEs to keep them running even today. [89] In other words, every unit could be regarded as a miniature society, and as a result employees including managers gradually engender a sort of dependence emotion. They become tolerant as long as their basic living standard being secured.
This might be one key reason why until now employees including managers will do whatever they are told to and rarely dispute with their "boss" although labour union exists in most large companies. It is impossible to image employees in China would strike for asking their employer improving their welfare. Overall, owing to the conception of unit, employees may not independent enough as "masters" [90] to supervise their employers or brave enough to fight for their interests. It is hard to anticipate employees can play a similar role in corporate governance like Anglo-American system or civil law system as German.
2. The Tradition of Harmony
One of the most popular words or conceptions in contemporary China is "Harmonious Society" or "Construction of a Harmonious Society". [91] The concept was formally proposed by Hu Jintao, the general sectary of CPCCC and president of PRC in 2004 as a development of traditional Chinese Confucian.
While some political commentators construing that into "nobody opposes me" and "no different ideas" [92] is controversial, however, to some extent, such comment reveals a prevailing perception that it is not good or encouraging to have debates or conflicts. Put it in the context of corporate governance, directors in the boardroom uncommonly dispute for one thing censoriously. Together with worship of the authority [93] , it is not hard to follow the observation that "in Chinese companies, usually when the chairman has signed his name on a document the others will follow him and sign and they will never do so if the chairman has not signed" [94] by one insider of a listed company. Correspondingly, if the members of BOS and independent directors are too critical (presumingly they could), it might probably be regarded as behaviour of destroying the harmony of the company as a whole. This is another essential reason for problematic corporate governance, and it is hard to overcome.
3. The Subtle Interpersonal Relationship
The interpersonal relationship is construed by Chinese scholar as "a form of social currency and through which can access to scarce information, resource or influence", [95] and "underlining much of China's economic institutions and transactions". [96] It has also been pointed out by Tomasic and Fu that "the Chinese believe that interpersonal relationships are more secure than the law". [97] Because good relationship is an invisible social resource for individual, most players involving in corporate governance prefer considering this subtle relationship prior to make a decision. They like to indentify the good relationship among themselves even between supervisors and supervisees. [98] This point as well as the above one might be the deeper reason why they tend to get unanimity beforehand rather than dispute intensively during meetings and why people in China not critical enough.
IV.Conclusion
In conclusion, over the last 20 years' reforming and opening up, China has gained great economic achievements from a fully planed economy to a decentralized market economy. However, the shadow side should not be inundated by flowers and applause. Especially with respect to the further improvement of corporate governance, stubborn obstacles still exist as having discussed above.
One essential feature is the interaction among these obstacles. They exist and affect complementarily. Take the "weak board" for instance, firstly the highly concentrated ownership structure lead board too weak and hard to independent, and then the non-tradable shares cause the board more obedient to the controlling shareholder, meanwhile the political influence such as party committee of the company make the board more or less like a tool of the controllers… There may more than one obstacle for one single problem, and such interaction among them undoubtedly exacerbates the situation. As a consequence, even one of the obstacles is removed, the whole position cannot be better off since other obstacles still exist.
Although as this essay having analyzed it is very difficult to improve the corporate governance in China integrated a variety of factors, however, it is by no means impossible. Even like the ideological obstacle which is seemed as an entrenched obstacle can also be through interpreting broadly to comparatively reduce the state control from the company. [99] If all players in corporate governance become pragmatic and "work the talk" [100] , it is still hopeful to overcome obstacles gradually and let the corporate governance in China improve to a new level, which in turn is necessary for the long-term and sustainable development.
