Convergence, Divergence or Lost in Translation to Sino-Capitalism? Legal Transplants in Corporate Governance in China

Abstract

China has experienced exponential economic growth in the last four decades. Today, it is not simply the world's biggest manufacturing facility, but has also become the second largest economy in the world. Such a phenomenal economic success was not achieved without hiccups and challenges. This was largely due to the fact that China has been pursuing ongoing economic reforms, a large part of which encompasses reforming inefficient or underperforming state-owned enterprises (SOEs), corporatising the SOEs, establishing stock markets for the listing of such corporatised SOEs, as well as regulating the rapid growth of private enterprises. These business changes were not initially supported by a well-established governance and regulation system due to the fact that China did not have any 'indigenous' laws to regulate its business and corporate growth. Hence, Chinese lawmakers had to 'transplant' corporate laws and governance instruments from developed Western countries. After all, China has come a long way from having no corporate governance system or legislation to the installation of a corporate governance law system that is, to its mind, largely in conformity with international standards and practices. Against such an unusual background, China naturally becomes one of the green fields for the study of legal transfers given its expeditious law-making processes through legal transfers. However, most legal research typically focuses on theoretical models and their quality assessments. Little attention has been given to the analyses of the correlation between China’s domestic conditions and the implantation of the corporate governance institutions. This research shows that China's approach to corporate governance 'transplantation' has usually been in form rather than in substance. It also finds that China has been modifying such transplants by infusing and incorporating its own local conditions and characteristics to suit its agenda of sustaining economic growth and in turn the ‘one-party’ rule. This thesis thus raises the question of whether such phenomenal and yet unsophisticated transplants of corporate governance systems into China actually constitute convergence towards or divergence from the “best” practices of corporate governance systems from the West. Alternatively, this form of transplant may be misunderstood or lost in translation creating a different pathway for economic growth to a specific type of capitalism unique to China – Sino-Capitalism. Focusing on the study of the relevant legal framework and practical operations associated with China’s corporate and economic development since its adoption of an ‘Open Door Policy’ in 1978, this thesis puts the case of China into the ‘convergence-or-divergence’ debate on corporate governance transplants and develops a theory of Sino-Capitalism which befits the finding that China’s modus operandi vis-à-vis transplantation of concepts and institutions from the West is indeed in form rather than in substance. This is largely due to inculturation of such transplants with China’s own local features and characteristics during the transplantation and implantation process. Contrary to the common misconception of commentators that China has been diverging from the civil law traditions and converging towards the Anglo-American models (albeit in a far from satisfactory manner), this thesis argues that this debate is lost in translation that the transition is to Sino-Capitalism. The dynamic process of corporate governance and economic reform in the last four decades shows that China has not stopped ‘finding its own feet’ by attempting to develop its own system through conceptualising and absorbing foreign norms and institutions into the Chinese context in order to facilitate a basis or platform for its economic reforms. This thesis also intends to elucidate that the understanding of how legal transplants have worked with China’s economic development, which in turn has brought about the emergence of Sino-Capitalism, may be significant beyond China’s corporate governance law system as China’s constant improvements might provide a beneficial reference point for other economies. The emergence of Sino-Capitalism presents diverse implications for both legal and economic reforms in the transition economies and for the global convergence-or-divergence debate vis-à-vis corporate governance transplants and reforms. In the transition economies, the interplay between the foreign and local contexts deserves further careful investigation. As for the global convergence-or-divergence debate, a ‘one-size-fits-all-or-best-practice’ global corporate governance model does give rise to a misunderstanding or is lost in translation to Sino-Capitalism in the case of the world’s second largest economy – China.