Corporate Governance in China - is Economic Growth Potential Hindered by Guanxi?

Abstract

Despite the opening of the market and partly privatisation of state-owned companies in China, the state still represents the controlling shareholder in larger companies. By analysing the weaknesses of Chinese corporate governance we illustrate the framework for harmful corruption. China is characterised by a weak legal system and strong influences of traditions such as guanxi. In this article we analyse the influence of guanxi on the Chinese corporate governance system. We find that guanxi is in general a double-edged sword but especially business-to-government guanxi can harm the weak Chinese corporate governance system and hamper its further economic development and growth.

Keywords: Corporate Governance, China, Transition, Law, Corruption, Guanxi

JEL Classification: G34, K42, N45, P31