The Impact of Corporate Governance on Financial Performance in China
Over the years, China has able to take enormous task of developing its economy into developing its various industries. In fact, the China Securities Regulatory Commission (CSRC) has announced that 2002 was the good year for corporate governance in the country. This has been also associated with transparency, accountability, and equality in the financial sector. Since then, China has been very careful of managing its financial sector by avoiding financial crisis and plundering of state assets. In the same manner, retaining its capital, as well as fostering domestic investments, so as raising cash fund for social obligations; China these days, gradually develops its financial markets and various companies through taking the learning advantages and apply the best practices from other business sectors of the economy. By doing this, financial market development and business reform in China has been started by product of the state-owned enterprise (SOE).
(http://mitsloan.mit.edu/50th/pdf/corpgovchinapaper.pdf)
Furthermore, as China’s economy heads off towards financial stability, the role of the financial market becomes significant in the growth of the entire economy. Some business experts considered corporate governance as the “last pillar to be moved” in its economy. Financial market development and better corporate governance go hand in hand for the economic reform in China. A well-developed financial market is one of the essential fundamentals of corporate governance reform in the country. For instance, the securities market is one of the important steps towards raising domestic assets. This market is a financial tool that helps the China government to shift from SOE jobs to economic obligations. During 1990s and 1991s, the government had set up the Shenzhen and Shanghai securities exchanges correspondingly, as a trial and error process in putting capital market machinery in
China. (http://mitsloan.mit.edu/50th/pdf/corpgovchinapaper.pdf)
Asset management has been the most attractive financial services in China for many years now; with the help of investment made by Chinese people, as well as the retirement plan and insurance needs increased among the Chinese population. This sector has grown widely, it even increases more than 60 percent per annum for the past three years of business. Many Chinese business experts foresee this condition to even give the economy a rise of 24 percent yearly for the next ten years. Subsequently, there are more than 27 foreign asset investments that have entered China in the past five years, through combined business undertakings and minority stakes. In spite that Chinese law limits foreign participation to business ventures with Chinese companies, foreign ownerships still rose to 49 percent.
(http://www.mckinseyquarterly.com/The_opportunity_in_asset_management_in_China_2060)
Moreover, the recent issue on the China Briefing Magazine written by Richard Cant, the Director of Corporate Accounting Services; and a new member of the Dezan Shira & Associates group. He is an Australian who wants to help legally many Chinese businessmen to establish private “empty shell” companies in the U.S. and register on U.S. stock exchanges, skipping directly to major boards such as NASDAQ or NYSE because of technical ambiguities. Various fraudulent activities have been widely exposed in various media sources in a theme of financial management.
(http://www.china-briefing.com/news/2011/03/31/new-issue-of-china-briefing-financial-management.html)
On the other hand, the major internal challenges of SMEs that operating in the Chinese territories are the deficiencies on the internal strategies of the SME businessmen, as well as the insufficient management of the business. Most SMEs have difficulties in sustaining their start-up capital for their expansion and operating capital for the SME business. Hence, SME sectors should promote good business relationships with banks as their important sources of financial resources. Small and medium enterprises in China are advised to maintain regular communication with the banks. By doing this, they can have chances to discuss with these financial institutions about their company’s needs, future plans and some suggestions and advice from the financial experts. SMEs need also to establish sufficient credit lines, and, in order to establish credit lines, establishing them in advance before the need arises is always a better action. In other words, a good-financial management practice is the most common solution in order to avoid any failure in the financial and corporate management in China.
(http://www.chinadaily.com.cn/hkedition/2011-11/30/content_14184635.htm)
In view thereof, corporate governance is evolving with business individuals and corporations are being controlled and directed. Seemingly, international guidelines are necessary to further improve its policy and standard. The good governance plays a vital role in the promotion of economic growth and business integrity of one nation. The main objective of corporate governance performance in China is to alleviate the economic condition of the entire Chinese communities, as well as to advance the economic status of the nation.
References:
(http://mitsloan.mit.edu/50th/pdf/corpgovchinapaper.pdf)
(http://www.mckinseyquarterly.com/The_opportunity_in_asset_management_in_China_2060)
(http://www.china-briefing.com/news/2011/03/31/new-issue-of-china-briefing-financial-management.html)
(http://www.chinadaily.com.cn/hkedition/2011-11/30/content_14184635.htm)
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