1. Corporate Governance: China’s Footprints and the Road Ahead The China Impact May 23rd. 2007 GAO Xiqing National Council for Social Security Fund P.R. China

2. 2 Outline 1: the footprints - institutional evolution of China’s corporate governance - the development of private sector - performance of corporate governance 2: the way ahead

3. 3 1946 1929 1904 1872 Code of Corporations Company Law First Joint Stock Company: China Merchant Group Amendments of Company Law 1.1 Institutional Evolution of China’s Corporate Governance 1.1 1950’s Abolition of all laws in the old regime and de facto nationalization of all industrial & commercial enterprises

4. 4 1993.11 1993.4 1992.5 1988 1986 Regulations on Functionality of State Owned Industrial Enterprises Law of Industrial Enterprises Owned by the Whole People Decision on Issues Regarding the Establishment of a Socialist Market Economic System Interim Provisions on the Management of the Issuing and Trading of Stocks 1978 reform and opening-up 1.1 Institutional Evolution of China’s Corporate Governance 1.1 The Standard Opinion on Joint-Stock Company

5. 5 2005 2001 1999 1994.8 1993.12 Code of Corporate Governance for Listed Companies Corporation Law Securities Law Amendments of Corporation Law and Securities Law 1.1 Institutional Evolution of China’s Corporate Governance 1.1 Special Provisions of the State Council Concerning the Floatation and Listing Abroad of Stocks by Limited Stock Companies

6. 6 Percentage of Private Sector Production in GDP 1.2 the development of private sector Public SectorDomestic Private SectorForeign Investment Companies 20002005 Source: All-China Federation of Industry & Commerce (2006) 1.2

7. 7 1.2 the development of private sector Percentage of Workers in Domestic Private Sector Production Note: includes workers of all economic sectors and geographic areas.

8. 8 The controlling person of the biggest shareholder NumberRatio (%) State Holding Companies90172.14 Collective Holding Companies131.04 Private Holding Companies31325.06 Companies Controlled by Foreign Capital60.48 NGO/QGO40.32 Staff Members’ Association for Share-holding120.96 Total1249100 1.2 the development of private sector Who controls the controlling shareholders of listed companies? Source: Nankai University (2007) 1.2

9. 9 The controlling person of the biggest shareholder Mean 200420052006 State Sector55.3655.8356.58 Private Sector53.8653.8154.70 All Sectors55.0255.5356.08 Performance of Corporate Governance: A Grading System 1.3 Performance of Corporate Governance Source: Nankai University (2007)

10. 2 10 -- the larger issue: public governance hardening budget constraint/ professional & mathematical management -- to change ownership structure: the share diversification dilemma insider control vs. the dominant biggest shareholder -- to improve market system: referee or player open & fair competition -- to improve regulation: easy said then done independent, transparent and fairness mandatory disclosure auditing enforcement: systemic incentives 2: the road ahead

11. 11 Thank you!