The corporate governance implications for China

The following paper applies agency theory to China’s current economic reform program. The financial and regulatory structures necessary for an efficient corporate governance system in China are discussed. The analysis is focused on the Chinese state – owned enterprises (SOEs) and township and village enterprises (TVEs). The first section of the paper seeks to review the essence of the principal – agent problem. The second section explains the ‘success story’ of the Chinese TVEs. The final part of the paper assesses the efficiency of SOE corporate governance mechanisms in China.