Topic: Political Control and Corporate Governance: Lessons from China’s State Banks
Presenter：Qiao Yu, professor, Qinghua University
Time: April 11, 2009（Friday）3：00—4：30 PM
Venue: Room 501, Jiageng Bld 2
Chair： Xinrong Qiang, associate professor in accounting, IFAS
Abstract：
After burst of the Southeast Asia financial crisis in the late 1990s, corporate governance of banking sector has increasingly become the focal issue in both academia and practitioners alike. In September 1999, the Basel Committee issued “Strengthen the banking and financial institutions of corporate governance”. Since then corporate governance of commercial banks has further drawn intensive attention from banks and regulators globally. In China, it is widely regarded that improvement of commercial banks’ corporate governance mechanism is a core reform to establish an efficient financial system. Indeed, reforms of the dominant Chinese state-owned commercial banks have impacts not only on the banking system’s operation and banks competitiveness, but also on the efficiency of financial resources allocation and the economic growth potential. Among all the factors, how to address weak and ineffective corporate governance of the state-owned commercial banks becomes the most crucial issue.
China's reform process has a particularity that cannot be replicated elsewhere, which also displays in the reform of state-owned banks during the period of transformation. The special status of the banking sector and the politic control of state-owned banks cancel out endeavors of improving bank corporate governance. Based on the institutional background of China’s banking, this article summarizes the governance characteristic of China’s state-owned banks, analyses the ineffectiveness of the governance of state-owned banks, and establishes a theoretical model to explain non-performing loan creation mechanism of the state-owned banks. So long as the political control invalidates the corporate governance; politicians and managers have a high incentive to conspire to maximize their own respective interests through trading between political goals and government subsidies. The main viewpoint of this article is: the premise of state-owned banks’ effective governance is largely based upon the government withdrawal and the yield of political control, though it is very difficult for the authorities to give up control of state-owned banks at present.