China Netcom: Corporate Governance In China (A) Case Solution

Question 1

The system of corporate governance of China is different from the other corporate governance around the world. The reason for this difference is due to the varying economic structure of the country. In particular, the large organizations were state-owned, implying that firm management were responsible to both state-owned objectives and other normal business. The target of the state, as the real shareholder, were additionally applicable. The firm’s Communist Party Committee additionally had critical control over key areas, for example, strategic planning.

The consideration for the change in the corporate governance began after the launch of two stock exchanges is Shanghai and Shenzhen. The Chinese Securities Regulatory Commission (CSRC) took initiatives to make changes in the corporate governance. The CSRC set out to ‘supervise the behavior of listed companies and their shareholders who are liable for relevant information disclosure in securities markets’.

The regulation on the State-Owned Assets of Enterprises was declared to protect the country’s essential economic framework, to set and add to the state-owned division, fortify the security of state-owned firms, permit the state-owned segment to assume a predominant part in the China’s economy, and progress the advancement of a normal business sector economy. The regulation represents the basis that performs the capacity of economic specialist, undertakings with trusts from the state, the choice administrators of endeavors financed by the state and the evaluation of their execution, critical matters bearing on the rights and premiums of the speculator of state-claimed resources, operational plans of state-owned firms, management of state-owned assets and lawful liabilities.

The major difference between the US system of corporate governance and SOE is that the US system is based on the single tier governance. This means that each company has a single Board that includes executive directors who are either employed by the company or have significant ties to corporate management, together with non-executive directors who have no direct relationship with the company or its management.

Unlike the Chinese corporate governance system, US systems allows the leadership duality. The company CEOs are empowered to serve as Chair of their corporate Board, which is prohibited in two-tier governance systems. Depending upon the viewpoint, this either increase board responsiveness to corporate concerns or reduces Board independence.

Moreover, the US system consists of standing committees that create permanent committees such as Audit, Compensation and Nomination. Minority shareholder rights are the special regulatory provisions of the US corporate governance system. Further, this system has comprehensive disclosure requirements across a wide range of information and a complex, well-regulated system for shareholder communications.

Question 2

The chairman Zhang claims that the position of the government in China Netcom is very similar to that of a majority shareholder in a US corporation. It is agreeable that all share ought to convey the same rights. All investors ought to have the capacity to acquire information about the rights joined to all purchase and classes of offer before they buy. Any changes in voting rights ought to be liable to support by those classes of offer that are adversely influenced.

While the corporate governance issues arising from the part of the State as an owned shareholder are a sub situated of the more extensive issues that emerges from the part of a owned Shareholder in dispossessing minority shareholder rights in an organization, there is one central contrast between the position of minority shareholders in a State owned enterprise (SOE) when contrasted with the position of minority shareholders in an ordinary business venture.

It can be possibly contended that the minor demonstration of posting of a SOE does not transform them into an industrialist element whose sole point turns into that of amplifying the estimation of the enterprise; the inalienable clash between more extensive “national interest” (sought after by the State) and the “minority interest” (sought after by the minority shareholders) frequently proceeds in a SOE prompting a vital essential issue between two arrangements of shareholders who may have diverse targets.

Question 3

The China Netcom went through planned reorganizations in order to get listed on overseas stock exchanges. It was listed on Hong Kong and New York Stock Exchanges in November 2004. The total capital it raised was about 1.14 billion US dollars in two offerings, whereas it raised about 52.3 million US dollars from its listing in New York Stock Exchange.

The listed assets of the company on the stock exchange included the wire line telecommunications operating system in six provinces in Northern China. The company was listed on the foreign stock exchanges mainly due to the reason that company wants to raise capital from the international markets such as New York and Hong Kong. In this regard the company is able to raise enough capital from their listing………………………

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China Netcom: Corporate Governance In China (A) Case Solution
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