"Quack Corporate Governance" As Traditional Chinese Medicine: The Securities Regulation Cannibalization of China's Corporate Law and a State Regulator's Battle Against Party State Political Economic Power

From the start of the People’s Republic of China’s (PRC) “corporatization” project in the late 1980s, a Chinese corporate governance regime subject to increasingly enabling legal norms has been determined by mandatory regulations imposed by the PRC securities regulator, the China Securities Regulatory Commission (CSRC). Indeed, the Chinese corporate law system has been cannibalized by all-encompassing securities regulation directed at corporate governance, at least for companies with listed stock. This Article traces the path of that sustained intervention and makes a case—wholly contrary to the “quack corporate governance” critique much aired in the United States—that for the PRC this phenomenon is necessary, appropriate, and benign. That analysis, in turn, reveals a great deal about the following: the development of Chi* Professor of Law, University of Michigan Law School. I would like to thank the following for their comments and helpful suggestions concerning prior drafts of this article or in connection with the research for it: Professors Yuen Yuen Ang, William Bratton, Donald Clarke, Mary Gallagher, Guo Li, Anna Han, Jennifer Hill, You-tien Hsing, Vic Khanna, Victoria Langland, Liu Junhai, Stanley Lubman, Andrew Mertha, Barry Naughton, Justin O’Brien, Kevin O’Brien, Chuck O’Kelley, Frank Partnoy, Adam Pritchard, Teemu Ruskola, Eric Talley, Tang Xin, Alex Wang, Anthony Zaloom, and Zhu Ciyun; the Hon. Jed S. Rakoff, United States District Court Judge, Southern District of New York; participants in the fifth annual symposium of the Adolf A. Berle, Jr. Center on Corporations, Law & Society (“Berle V”) convened at the University of New South Wales, Sydney, Australia in May 2013 titled, “Capital Markets, the Corporation and the Asian Century—Governance, Accountability and the Future of Corporate Law”; and Michigan Law School doctoral student Ms. Tamar Groswald Ozery. In addition, I am very grateful to my colleague Ms. Alex Zhang Xiaomeng of the University of Michigan Law Library for her help in tracking down electronic sources for various Chinese laws, administrative regulations, and “normative documents” no longer in effect. Unless otherwise noted, all translations, Chinese to English and English to Chinese, are by the author. 668 Seattle University Law Review [Vol. 37:667 nese law and legal institutions after 1979; China’s contemporary political economy; the true identity of the firm under the PRC “corporatization without privatization” program; the normative character and function of corporate law across increasingly globalized capital markets; and the ways in which state intervention may protect against state abuse of power and enable greater private autonomy. For analysts of China’s contemporary political system, this Article uncovers a new identity of the Chinese party state’s horizontally oriented “fragmented authoritarianism,” where a central government agency has instituted pre-enforcement designs that systemically constrain the economic and directorial power of the PRC’s most powerful, formally non-governmental, political economic actors. 2014] “Quack Corporate Governance” As Traditional Chinese Medicine 669 After a decade of experimentation and experience, effectivelyimplemented supervision systems and methods [for Chinese listed companies] are in place. However, these supervisory systems and methods stop in large part at the level of administrative regulation and policy, resulting in too large a gap for effective enforcement [between such administrative regulation and] national laws like the Company Law, the Securities Law, etc., and a lack of required coherence [in the legal-regulatory system]. – State Council of the PRC, Legal Affairs Office, September 7, 2007 1