China's Sarbanes-Oxley

Nice article in today's Shanghai Daily discussing China's Basic Standard for Enterprise Internal Control, Companies face tougher oversight. The Basic Standard is supposed to bring stronger corporate governance to China's listed companies, and is often compared to Sarbanes-Oxley. The Basic Standard is currently in its public comment phase which lasts until September 30, 2008. The Basic Standard will then undergo revisions, and become effective on July 1, 2009. The SD article uses a survey by Protiviti to show why China is strongly in need of stronger corporate governance rules, Corporate Governance Assessment Summary Report on the Top 100 Chinese Listed Companies for 2008.

The report finds that the biggest problem with corporate governance in China's top 100 listed companies is that minority shareholders do not have adequate tools to protect their rights. This renders shareholder meetings a formality, and the decisions of directors and executives are often just a "rubber stamp" of the majority shareholders wishes.

The most startling conclusion of the report is that the overall corporate governance among the top 100 listed Chinese companies has not improved over the past 10 years. Improvement has only been witnessed in two cases: 1) H-share companies, and particularly H-share companies that were listed in the US and thus subject to regulation on several markets; and 2) companies that have taken it upon themselves to adopt stronger corporate governance rules. The report especially lauds those companies that fall into the second category, but finds that the discrepancy between companies with strong governance and lax governance rules is too great to overcome improvements by other companies. The only solution, Protiviti argues, is a legal standard. Come July 1, 2009, China will have just that.

The report also includes a list of Top 20 Chinese companies with the best corporate governance. Here's the top 5:

1. Ping An
2. ZTE Corp.
3. Aluminum Corp. of China Ltd.
4. Jiangsu Expressway Comp. Ltd.
5. Yunnan Copper Comp. Ltd.
   

Here are a couple articles on what it is going to take to for Chinese companies to implement the Basic Standard for Enterprise Internal Control: one from Protiviti; and another from Deolitte.