South China Morning Post
August 25, 2006
It has often been said that China is different. And it is. In few other markets is there such a degree of political presence permeating just about every facet of society. This all-pervasive presence gives rise to a systemic issue in corporate governance in which the risk of corporate malfeasance stretches beyond just the commercial honesty (or otherwise) of management. Intimate ties between politics and business, high levels of connected transactions and the cosy practice of selecting company directors from a limited pool of insiders are all issues that fall outside the regulatory box in western markets. While listing in global markets has brought about a degree of convergence with international best practice, this political dimension remains a major stumbling block. In the absence of institutionalised safeguards that take into account the special characteristics of this market, investors are left with little protection against this peculiarly Chinese moral hazard and few ways of evaluating the risks involved.