Corporate Governance and China’s H-Share Market

Corporate Governance and China’s H-Share Market

Corporations, Globalisation and the Law series

Alice de Jonge

Using detailed case studies of the first nine mainland Chinese companies to be listed on the Hong Kong stock exchange, this book examines the evolution of corporate governance law and culture in China’s H-share market. A story emerges not of tensions between ideas of corporate governance from two different legal systems – Hong Kong vs mainland Chinese – nor about legal convergence as China adopts concepts from Anglo-American jurisdictions. Rather, it is a story of individual firms being pragmatic in mediating the different agendas of state-agencies that own or control them.

Chapter 3: Securities, Regulatory Authorities and H-Share Enterprises

Alice de Jonge

Subjects: asian studies, asian business, asian law, business and management, asia business, corporate governance, international business, economics and finance, corporate governance, law - academic, asian law, corporate law and governance, finance and banking law


I INTRODUCTION H-share firms are subject to regulatory control from both sides of the mainland–Hong Kong border. The aim of this chapter is first to describe the broader role and powers of the regulatory institutions which oversee the securities markets in mainland China and in Hong Kong, and second to outline the framework within which H-share listing applications are assessed and approved by the different regulatory authorities. This will then provide the institutional context for discussing the corporate governance reforms outlined in Chapter 4, and the case studies presented in Chapter 5. II THE CHINESE SHARE MARKET: AN OVERVIEW The Chinese legal system contains no express classification of shares into different types. Since its very earliest days, however, the China equity market has been notable for its rapid diversification into a bewildering variety of shares. A A-Shares A-shares are domestically listed shares of Chinese companies which, until very recently, have been available to Chinese investors only. A-shares can be further divided into three different classes: state-owned shares, legal person shares and ‘social’ (publicly owned) shares. According to Chao Xi, the legal strategy of dividing company shares into three classes based on the attributes of the shareholders was adopted in order to ‘secure the dominant position of state-ownership in larger companies transformed from SOEs’.1 State-owned shares are typically held by the central and local governments (represented by local financial bureaus, state asset management companies or investment companies) and by the parent of the joint-stock company...

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