Professor Junhai Liu

Internationalisation of Chinese corporate law and corporate governance: How to make the hybrid of civil law and common law work?

Chinese corporate law and corporate governance have been heavily influenced by German law, arranging from the separation of limited liability corporation and joint stock corporation, to the two tier system including but not confined to employee participation on the supervisory board. However, Chinese corporate law introduced quite a number of institutional arrangements from US law in 2005, including but not confined to independent directors, shareholders’ derivative action and the doctrine of piercing the corporate veil. Therefore, China may offer an example for the hybrid of civil law and common law in the area of corporate law and corporate governance.

China introduced shareholders’ derivative action in Article 152 of Corporate law amended in 2005. Therefore, any eligible minority shareholder may, in their own name, but on behalf the interest of the corporation, take legal actions against the wrongdoers, like directors, supervisors and the controlling shareholders and claim damages suffered by the corporation. If the interest of an individual shareholder, instead of the corporation, is damaged by the directors or senior executives, the victim shareholders may take direct action against the wrongdoers under Article 153. Under Article 55 of Civil Procedure Law of 2012, non-profit organizations stipulated by law, may take class actions, on behalf the public investors, against the wrongdoer directors or supervisors. Although the implementation of a duty of care and fiduciary duties have been identified as a core issue in China, the business judgment rule has not been accepted by the legislature and judiciary yet.

The Chinese Securities Regulatory Commission (CSRC) has played an active role in improving corporate governance. As a house-keeper, it first published a model Memorandum of Association applicable to listed corporations, and then made the Code of Listed Corporation in 2002. As a gate-keeper, it paid attention to the corporate governance when the issuer applies for IPO. As a market watch-dog, CSRC punishes the wrongdoing directors and supervisors through the imposition of both legal penalties and reputation records. CSRC may also disqualify certain wrongdoers from acting as directors and supervisors either for certain periods or for life. These aspect will be unpacked and explained in the paper.