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Corporate Governance of China()

Team Members:

Almalik Rajpari

Amala Shah

Monali ChhabdaMisba Shah

Sabrina Shroff

Tanveer Khan5/4/2012

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Chinas stock market is worse than a casino. At least in a

casino there are rules

Wu Jinglian, a famous

Chinese economist, 2001

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Introduction Transition from a planned economy to a market-

oriented economy

Control based model

Built-in weaknesses Control-based model to market-oriented

governance model

Objective of Chinese stock market: Platform to

State Owned Enterprises

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Regulatory Side of CG

The China Securities RegulatoryCommission (CSRC)

Responsibility of studying and establishing

guidelines and policies for future marketand security market

Other corporate governance regulatory

bodies include: the National People'sCongress, the State Council, the Ministryof Finance, the People's Bank of China,Shanghai Stock Exchange and Shenzhen

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Audits/Control System Audit committee comprises of:

- Members from the companies Board of Directors

- Independent directors should account for the

majority of the committees members- Each audit committee should contain at least one

independent director with relevant professionalqualification in accounting

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The work of the Audit Committee

According to the Code of Corporate Governance forListed Companies, audit committee areresponsible for the following activities

(1) Proposing to hire or replace the external auditor

(2) Monitoring the company's internal audit policiesand their implementation

(3) Coordinating communication between internaland external auditors

(4) Reviewing the company's financial informationand disclosure

(5) Reviewing the company's internal controlpolicies

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Remuneration of Management Linked to firms performance & Individual

performance

Underpaid compared to western standards

Top Executives: Fixed Salary + Bonus

Most Executives including directors and seniormanagers get paid $6,250 p.a.

Top 3 executives: $12,000 p.a.

Benefits for executive directors: car and housing

subsidy Independent directors: $6,250 + allowances

Disclose details of remuneration in AnnualShareholder Meeting

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Non-executive directors hold the most shares

Independent directors hold the least on average

Senior managers tend mainly to hold employeeshares issued to them when the company was listed

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Governance of the Board It does the financial supervision for the company

It lacks skills and experience

Channels of information: Management Board &

senior Management Lack of Information for making decisions

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Composition of the Board It is a two

tier control system comprised of the

Board Of Directors and the Board Of Supervisors

Chinese company law stipulates Board ofDirectors should total between 5 and 15 in alisted company

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Disclosure

Disclosure should include, but not be limited to,material information on:

1. The financial and operating results of thecompany

2. Company objectives3. Major share ownership and voting rights

4. Remuneration policy

5. Related party transactions

6. Foreseeable risk factors

7. Issues regarding employees and otherstakeholders

8. Governance structures and policies5/4/2012

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Problems of Corporate

Governance in China

Concentration of state ownership

Lack of independence among board directors

Insider trading

False financial disclosures

Immature capital markets

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Conclusion

If I were the only one who lost money, I would blamemy poor IQ or wrong decisions; But now everyonehas lost money, so its a problem with the market.

a Chinese investor

Investors confidence level drops

Reform SOEs likely to increase accountability

Reduced political influence

Non tradable state shares to tradable shares Overall China is made significant progress in

maintaining the corporate governance

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Thank you!

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