Minority Shareholder Protection in China’s Top 100 Listed Companies

Western economists have argued that the legal environment for the protection of minority shareholders and mechanisms for restricting the expropriation of minority shareholders will be important in determining the size and extent of a country's capital markets. In China, the protection of minority shareholders is officially regarded as a major regulatory objective of those responsible for controlling the securities market. This is especially so in regard to Chinese listed companies. In practice, the position of minority shareholders in these companies is not well protected, suggesting that economic development and investment in listed companies does not fit neatly with expectations created by leading Western law and development theorists. This paper reports on findings from an empirically-based study of corporate governance in China's top 100 listed companies that examined a broad range of corporate governance issues, in addition to the problem of minority shareholder protection. Major challenges in achieving better protection for minority shareholders arise from (1) the size of the majority block holdings held by the State in major Chinese listed companies; (2) the low priority that is in practice given to the protection of minority shareholder interests by controllers (as reflected in the high number of related party transactions); (3) the perceived sense of powerlessness of minority shareholders; (4) the inadequacy of civil remedies that are available under the People's Republic of China (‘PRC') company and securities law to seek to protect minority shareholder interests and the weak position of independent directors in these companies. These challenges are the subject of this paper