An Economic Perspective on Recent Corporate Governance Developments in China with Comments on Chapters by Yang, Gu and Wang

The almost three decades of economic reform have resulted in some fundamental and structural changes in China. The basic theme of the Chinese economic reform is to shift away from a central planning economy to a largely market-based economy. In the central planning economy, the central government collected information from its subsidiary units, which included local governments and state-owned enterprises (SOEs), made central plans (for example, the medium-run “Five-Year Plans”) and then required the subsidiaries to implement the plans through a “chain of command” administrative structure. Thus, the relationships among the central government and its subsidiaries were administrative. On the other hand, in the market economy, economic decisions are decentralized and so the subsidiaries enjoy more autonomy in making their decisions, while the relationships among the economic agents are governed by the market. During the transition, while the previous administrative relationships are dismantled, a new framework needs to be constructed.