BOFIT Viikkokatsaus / BOFIT Weekly 2017/33

Media reports claim the recent campaign by the Communist Party of China (CPC) to increase the state's role in corporate operations is increasingly apparent even for Chinese state-owned enterprises (SOEs) listed on the Hong Kong stock exchange. The Wall Street Journal reports that at least 32 Chinese firms listed on the Hong Kong exchange have amended their corporate articles of incorporation since 2016 to give a CPC committee an advisory role in board decisions. Most of these changes have occurred in recent months. The Financial Times noted that the articles of association in roughly 100 SOEs held by the central government and administered by the SASAC had been amended to increase the party's role in firm governance.

It is unclear why there is now a need to elevate the role of party committees and how the campaign pertains to planned reforms designed to make SOEs more efficient. An important part of corporate reforms is incremental privatisation of SOEs to increase the efficiency of their governance and operations. It is difficult to see how the strengthening of party committees would help to reach these goals particularly as the pool of competent people for such committees remains limited.

The efforts of the CPC to increase power in governance of listed SOEs is at odds with promised market reforms and quite off-putting to foreign investors. The matter could even affect current policy debates in Europe and North America on restricting Chinese investment and corporate acquisitions.