The Then Practice of Corporate Governance of Chinese Listed Companies

At the very beginning of the 1990s, the primary purpose of setting up the Shanghai Stock Exchange and the Shenzhen Stock Exchange was to raise funds to save moribund SOEs. This policy, favored by the Communist Party of China (CPC) and the Chinese government, has led to the fact that state-controlled listed companies have constituted the overwhelming majority in comparison with private listed companies in the above two stock exchanges. By the end of 2006, there were 998 state-controlled companies and 405 private companies listed on the two stock exchanges. In addition to the listing numbers, Table 2.1 shows the ratios of the market capitalization of state-controlled listed companies issuing A shares in the Shanghai Stock Exchange and the Shenzhen Stock Exchange to that of A shares of the two stock exchanges from 1995 to 2005. According to the data in Table 2.1, it is clear that state-controlled listed companies are almost the synonym of A shares in mainland China. Likewise, Table 2.2 displays the ratios of the annual IPO numbers of state-controlled listed companies issuing A shares in the Shanghai Stock Exchange and the Shenzhen Stock Exchange to those of A shares of the two stock exchanges from 1993 to 2006. In terms of the statistics in Table 2.2, it is fair to say that A-share markets in mainland China principally serve SOEs to be listed and to raise funds as the initial intention to develop Chinese stock markets. Taking into consideration the huge difference between the market capitalization of A-share markets and that of B-share markets in China, it is legitimate to reach the conclusion that state-controlled listed companies have dominated Chinese stock markets. Meanwhile, the socialist regime and long-term tradition of state ownership have also made the CPC and Chinese government focus on state-controlled listed companies which are the backbone of the Chinese state-owned economy. Therefore, in this book, the corporate governance of Chinese listed companies is confined to that of state-controlled listed companies because they have much more clout to influence the distribution of resources and the design of institutions due to their economic and political advantages in China.