CONVERGENCE CONFUSION AND A LACK OF
continue to develop and reproduce varied systems of economic organi- zation with different economic and social capabilities (Orru, 1997; North, 1990).19
Studies of cross-national variations in governance mechanisms in nine industries reveal considerable national differences in the prevalence of mar- kets, hierarchies, networks, states and associations as institutions regulating economic exchanges. Such variations reflected longstanding contrasts in the characteristics of national legal systems, political and financial systems (Hollingsworth, Schmitter, & Streeck, 1994). Therefore, despite legislations, formal compliance of corporate governance regulations will not be effected unless these ‘ethereal’ and substantive issues are resolved.
In the case of China, this manifests itself in the different meanings of corporate governance in China, its scope and its contents, making opera- tional decisions difficult. It has, in public pronouncements, been variously seen as a new and modern way of management while for some, it is a set of procedures and structures enabling owners and regulators to supervise managers. This confusion, Tam suggests, is because of the Chinese language itself. There are no precise terms in the Chinese language for corporate governance but the preferred current nomenclature, farenzhilijiegou (which has been officially adopted by the CCP in 1999) is more suggestive of ad- ministering and supervisory roles. More critical is the lack of reflexivity, that is, the term is used without an appreciation of its context and evolution.
Corporate governance does not arise in a vacuum – it has an accompanying history and is shaped by institutional thinking and practices.20
The Chinese model of corporate governance as it stands, fails to contex- tualise and appreciate this critical institutional insight. As such, it is a his- torical, stylised, highly prescriptive, legalistic and partial. It originated as a tool used in reforming SOEs through corporatisation and de factopriva- tisation (both partial and complete) of these enterprises, but its effects have yet to be clearly thought through. Operationally, it has not been effective and has not achieved its desired objectives: the Chinese government con- fuses form with substance – installing the nominal structures of governance is not synonymous with that of a fully functioning system. Prevailing social structures and conventions not only have consequences for the ways that particular systems of economic coordination and control develop, but also greatly influence the ‘rules of the game’ according to which individuals and organisations make ‘rational’ decisions about investments and compete (North, 1990; Orru, 1997). In embracing the ‘American’ orthodoxy, the Chinese government has in effect, elevated and privileged a particularistic view. Market forces have taken on a deux ex machina role operating in LOONG WONG 128
a social and cultural vacuum. Moreover, this view is essentially static ignoring dynamic costs and learning; the rules and practices of governance have to be learnt, tested, refined, internalised and seemingly ‘naturalised’.
Be that as it may, the Chinese government needs to push on for greater reforms. As indicated above, there are varying practices in governance and they have evolved historically. Adopting what is seemingly imported ‘best practices’ simply does not work. For example, in the west, a plethora of measures aimed at improving corporate governance – separation of the position of board chairman and the CEO, increasing the proportion of non-executive directors on the board, providing share options, increasing disclosure and ‘transparency’ etc., have all not met with the unmitigated success they are supposed to deliver. Recent corporate failures clearly attest to doubts over the effectiveness and rationale of these measures.21
In promoting enterprise reforms, the Chinese government should be aware that even in the American tradition, governance for financial firms and non-financial firms have trekked substantively different paths and if they are not expected to converge even in the American model (Chandler, 1990;Fligstein, 1990;Campbell & Lindberg, 1991;Dobbin, 1994), the Chi- nese should seriously question the ‘one size fits all’ model articulated by investors and enthusiastic proponents of corporate reform.
Moreover, a concentration on SOEs reforms fail to recognise that the non-state sector, particularly the private enterprises sector (comprising small and medium-sized enterprises) are now significant economic and industrial agents within China’s economic transformation. China’s present economic landscape is too heterogeneous with a broad range of organisational forms, practices, activities, scale and scope. Corporate reforms instituted needs to recognise that these firms have varying needs and practices and the formal- istic and unitary corporate (governance) model could effectively stifle their growth and participation in modern China’s economic, business and finan- cial transition and development. The danger is that these ‘intermediaries’
may be too active in corporate governance within these firms, obviating any perceived and real advantages; it would be business as usual.22
This is not to argue that there is no need for reforms. The contrary is true especially in the current context when the government is seeking to offload the state banks’ bad debts through various schemes of debt-equity swaps and the establishment of financial intermediaries to help state-owned finan- cial assets from the corporatisation and privatisation of SOEs. This has led Gordon Chang (2002) to caution the one-dimensional and enthusiastic re- sponse to China’s ascension to the WTO; the ‘barbs’ are there and one can readily be choked and lacerated in the process.