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Holding company risk in China: a final step of state-owned enterprises reform and an emerging problem of corporate governance

Institute of Developing Economies, Japan

Abstract
Public Enterprise Reform in China has reached a plataeu, and is awaiting the last step of privatization.
Most of non-regulated industries in China has improved their competitiveness thorough a hard and
intense competition, particularly in the home appliance industry. However, it still happened that excellent
companies with nationwide brands suddenly fall into severe difficulties and suddenly disappears in the
industry, as we seen in the early 1990’s. Author argues that this is caused by structure of corporate
governance in China, which can facilitate to enhance the control right of the controlling shareholder, that
is the government for the most of listed company in China, compared to their holding cash flow right.
This corporate structure, which is called ‘‘pyramiding’’ allows an implicit controller of the company, the
municipal government, to exploit. In the cases of listed company in China, the ‘‘holding company’’ is the
conduit of this risk. Experiences of 2 companies from home appliance industries in China will be
documented here.
D 2002 Elsevier Science Inc. All rights reserved.
Keywords: Holding company; China; State-owned enterprises; Corporate governance
1. Introduction
Public Enterprise Reform in China has reached a plateau, and is now awaiting the last step of
privatization. Most nonregulated industries in China have improved their competitiveness
1043-951X/02/$ – see front matter D 2002 Elsevier Science Inc. All rights reserved.
PII: S1043-951X(02)00094-9
E-mail address: mariko@ide.go.jp (M. Watanabe).
China Economic Review 13 (2002) 373–381
thorough a hard and intense competition. In one particular example, firms in the home appliance
industry are aggressively seeking for and getting strategic alliances with foreign companies.
This year, 2002, may become a milestone for the Sino–Japan economic relationship. In
January, Sanyo Electric announced its alliance with Haier Electrics, in Shandong, which will
facilitate the selling of Haier products in the Japanese market. In April, Matsushita Electric
Industrials announced its alliance with TCL, in Guangdong, in order to exchange TCL’s sales
network, which effectively reaches China’s rural areas, and Matsushita’s technology in audio
and visual products. Toyota motors also announced that its realliance with First Motors,
which merged with Tianjin Motors, the ex-partner of Toyota’s joint venture. Nissan and
Honda also followed Toyota in summer. Excellent companies in Japan consecutively have
announced their alliances with emerging Chinese companies.
However, it is still possible that excellent companies with nationwide brands can
unexpectedly fall into severe difficulties and suddenly disappear, as was seen in the early
1990s. The deeper the relationships at the corporate level, the more directly the defects of the
Chinese companies will affect the Japanese partner. Currently, I would argue that the
performance of the Chinese companies are not so much determined by their ownership,
such as whether they are owned by the state, rural townships or villages, or by private owners.
This paper will argue that the pattern of corporate governance structure in China’s listed
company is the d本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。