The corporate governance code of China needs to be updated and developed to meet the challenges of the 21st century. The two major components of the code are State Owned Enterprises (SOE’s) and Listed Companies. The major issue of the code is that the state maintains a controlling or full interest in the organizations and the state wants all organizatioms under the code to operate on a good percentage of profit yet the major purpose of these organizations must not be profit maximization since along with the state the responsibility of maximizing the economy is shared between the State and the companies that come under its code. If the organization is managed by any other entity than the state then the state receives a share of the profits.
The controlling nature of the Chinese government under the corporate governance code is because the state ensures good maintenance of employment levels, protection of sensitiveindustries and building up the economy. These factors of the code inChina result in issues; major being that the goals set by the state on the basis of the code are not measurable. It is not possible to keep a check an balance on each company even if the state has a controlling interest in the company. The other issue is that with the state as the controlling body, a conflict of interest between the state and shareholders exists. Since the major control is with the state the other organizations find themselves in a tight position. The Chinese corporate governance code is apt in a state controlled economy or rather a planned economy whereas, today’s world is changing dynamically, posing challenges to all organizations so the Chinese code is not effective enough to meet the challenges of the changing circumstances. This is the most pressing problem of the corporate governace code ofChina (Shleifer et al, 1997, pp. 737-783).
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