Legislative Reflections on Affiliated Enterprises and Enterprise Groups under Chinese Law and Significance of Korean Experience
Authors:   LAW RESEARCH INSTITUTE CHUNGBUK NATIONAL UNIVERSITY, ZHANG Zhenbao 
Published: January 2024

This article fist describes the relevant legal provisions on associated enterprises and enterprise groups in China, and discusses the application of associated enterprises, related relationships and enterprise groups in Chinese judicial practice. It then describes the Koreas experience, describing the designation of the same person system in the Monopoly Regulation and Fair-Trade Act of Korea and the regulation of enterprise groups through the regulation of circular and sequential capital contributions. Finally, the authorʼs opinion is given as to whether the Korean experience can be of relevance to China. Chinese enterprise groups have seen extremely rapid growth in recent decades, with the Chinese government developing its economy, controlling peopleʼs livelihoods and entering the international market through large enterprise groups. Chinses enterprise groups, especially state-owned enterprise groups, are basically formed by the government based on various needs and through administrative orders, and they have entered the market without any validation of rationality. Examining the legislation related to enterprise groups in China, it can be seen that the regulation of affiliated enterprises and related relationships in Chinese law is only for the purpose of regulating the internal governance structure of companies and tax collection, rather than for the purpose of planning the economic structure of the country and regulating monopolies. Chinaʼs enterprise groups have formed a huge enterprise system through economic ties and administrative orders, and this system will naturally have corresponding disadvantages in the process of development. However, at present, China only supports and promotes the rapid development of enterprise groups, and does not see a position to regulate them. In the South Korea, over the past few decades, family enterprise has formed large conglomerates through related enterprise and circular capital contribution, and such businesses have shaped the countryʼs economic development model. The shortcomings of Korean family enterprise were exposed in the 1997 economic crisis. Individual families at the top of such enterprises control the entire conglomerates with only a small number of shares, creating a minority shareholding system that has even shaped the countryʼs economy. In response to the shortcomings of this economic model, the Korean government established a regulatory system represented by the Monopoly Regulation and Fair-Trade Act, which is a system of designating the same person, i.e., family that controls a enterprise group with assets exceeding 5 trillion won, the Fair Trade Commission establishes and publishes a catalog of enterprise groups belonging to the same person. The enterprise groups designated as the same person are required to fulfill various reporting and submission obligation to prevent the special relations of the enterprise groups form seeking or obtaining undue benefits through the exercise of actual influence. This system has regulated the development of large Korean enterprise groups. Korean enterprise groups and Chinses enterprise groups are extremely similar in terms of corporate governance structure, especially in that the controlling shareholders have a stable position and exercise control over the enterprise largely unencumbered by external constraints, which in turn results in the controlling shareholders being arbitrary and domineering, which is almost entirely similar. The difference is that the controlling shareholder of Chinses state-owned enterprise groups is the government, while the controlling shareholder of Korean enterprise groups is the family. But the same is that, in the situation of controlling shareholders absolute control of the enterprise groups, if there is no constraint mechanism to restrain the controllers of the enterprise groups unilaterally expand the scale of the enterprise,