In 2015, as part of a program to reform China’s state-owned enterprises (SOEs), Guiding Opinions were issued by the Central Committee of the Chinese Communist Party (CCP) and the State Council requiring SOEs to amend their corporate charters to formalize and elevate the leadership role of the party in their corporate governance. In an attempt to clarify the contours of political conformity in Chinese corporate governance, the paper empirically examines the patterns of ‘party-building’ (dangjian) charter amendments adopted in response to this policy by all listed nonfinancial Chinese firms in the four-year period from 2015-18.
The paper’s findings support Milhaupt and Zheng’s (2015) analysis of the blurred dichotomy between SOEs and privately owned enterprises (POEs) in the Chinese political economy. Not all SOEs abided by the dangjian policy, and although POEs were not subject to the Guiding Opinions, a significant number of POEs, particularly politically connected ones, also amended their charters to add party-building provisions. The paper finds wide substantive variation in adoptions within and across firm ownership types. The template for charter amendments circulated pursuant to the Guiding Opinions can be grouped into symbolic, decision-oriented, and personnel-oriented provisions. SOEs did not uniformly adopt the entire panoply of recommended provisions. In particular, SOEs cross-listed on Hong Kong or foreign stock exchanges adopted less intrusive provisions than other SOEs, suggesting that the capital market constrained political interventions into corporate governance. POEs that amended their charters to include party-building provisions were far more likely to adopt symbolic provisions than decision-oriented and personnel-oriented provisions, suggesting that the amendments were undertaken to signal fealty to the CCP without changing substantive corporate governance practices. These findings raise a number of questions about the prospects for Chinese corporate governance, economic performance, and foreign investment activity.The Oxford Business Law Blog was established by Oxford University Faculty of Law in 2016 and is one of the world’s leading online forums “for the exchange of ideas and the reporting of new developments in all aspects of business law, broadly defined”. For the relevant report in OBLB, see: https://www.law.ox.ac.uk/business-law-blog/blog/2020/04/party-building-or-noisy-signaling-contours-political-conformity