Chapter 1 Corporate Disclosure, Corporate Governance, and Law Reform in the People's Republic of China 1
1.1. Why Has the Study of Corporate Governance in the People's Republic of China Become Important? 1
1.2. An Overview of Corporate Disclosure and Corporate Governance in China 3
1.2.1. The Concept of Corporate Governance Used in China 3
1.2.2. Is Corporate Governance in China Improved by the Adoption of a Top-Down or Bottom-Up Approach? 6
1.2.3. Stages of Corporate Governance Development in the PRC 12
1.2.4. Major Corporate Governance Issues in China 13
1.3. Establishing the Corporate Disclosure Regime as a Tool for Improving Corporate Governance in China 15
1.4. Transplanting Foreign Corporate Disclosure Laws into China 16
1.5. Improving the Approach of Transplanting Foreign Laws Using the Australian Transplantation Experience 16
Chapter 2 Introduction 17
2.1. Background of the Formation of the Corporate Disclosure Regime in the PRC 17
2.2. The Significance of This Book 23
2.3. Three Hypotheses Explored in This Book 27
2.4. The Outline of This Book 29
2.5. Methodology 31
2.6. The Cut-Off Date 32
Chapter 3 An Introduction to the Chinese Legal System:Setting the Context for Securities Law Reform 33
3.1. Introduction 33
3.2. Legal History of the PRC 34
3.2.1. The Importance of Reviewing Chinese Legal History 34
3.2.2. A Brief Review of Chinese Legal History 35
3.3. Sources of Law in the PRC and Their Importance 44
3.3.1. Introduction 44
3.3.2. Forms of Legal Sources in the PRC 50
3.4. Lawmaking Bodies in the PRC 56
3.5. Lawmaking Processes in the PRC 58
3.5.1. Lawmaking Process of the NPC 58
3.5.2. Lawmaking Process of the Standing Committee of the NPC 60
3.5.3. Process for Making Administrative Regulations by the State Council 63
3.5.4. The Making of Local Regulations by Local People's Congresses 65
3.5.5. The Making of Departmental Administrative Rules by the Ministries and Commissions of the StateCouncil and the Making of Local Administrative Rules by the Provincial Governments 65
3.6. Enforcement of Law in the PRC 66
3.6.1. The Enactment of the Company Law of 1993and the Securities Law of 1998 and Their Amendments in 2005, as Well as Relevant Administrative Regulations and Administrative Rules 70
3.6.2. How Did the PRC Start Regulating the Securities Market? 71
3.6.3. How Were the First Company Law and Securities Law Enacted? 72
3.7. Conclusion 76
Chapter 4 Gatekeepers in the Chinese Securities Market 79
4.1. Introduction 79
4.1.1. Re-emergence of Securities Issue and Regulation 80
4.1.2. Corporate Disclosure Rules 93
4.2. The Regulator of the Chinese Securities Market: The CSRC 93
4.2.1. Regulation by Other Bodies of the Central Government before 1998 93
4.2.2. Trying to Centralize Securities Regulation 94
4.2.3. The Functions of the SCSC and the CSRC 95
4.2.4. The CSRC's Rules on Disclosure 102
4.2.5. Overview of the Functions of the CSRC 103
4.3. The Regulators of the Chinese Securities Market:Other Departments under the State Council 106
4.3.1. Regulation by the PBOC 106
4.3.2. Other Departments of the State Council 110
4.4. The Regulators: Local Governments 114
4.4.1. Regulation by Local Governments before the CSRC was Established 114
4.4.2. The Role of Local Governments after 1998 116
4.5. Other Regulatory Bodies: The Stock Exchanges 116
4.5.1. Why the Shanghai and Shenzhen Stock Exchanges Were Established 116
4.5.2. The Shanghai Stock Exchange (SSE) 117
4.5.3. The Shenzhen Stock Exchange (SZSE) 121
4.5.4. Overview of the Role of Stock Exchanges in the PRC 122
4.6. Self-Regulatory Organizations 123
4.6.1. Securities Industry Association 123
4.6.2. Other SROs 125
4.7. Conclusion 125
Chapter 5 Regulatory Rules Dealing with Disclosure in the PRC's Securities Market 127
5.1. Introduction 127
5.1.1. What Is the Concept of Securities Used in This Book? 131
5.1.2. Companies' Duty of Disclosure versus Directors'Duty of Disclosure 132
5.1.3. Where Are the Disclosure Rules? 134
5.1.3.1. The Structure of Disclosure Rules 134
5.1.3.2. The Disclosure Rules under the National Laws 135
5.1.3.2.1. The Company Law of 2005 135
5.1.3.2.2. The Securities Law of 2005 136
5.1.3.2.3. The Criminal Law of 1979 137
5.1.3.3. Disclosure Provisions under Administrative Regulations 138
5.1.3.3.1. The State Council's Interim Regulations on Administration of Share Issuing and Trading of 1993 (The 1993 Interim Regulations) 138
5.1.3.3.2. The Regulations on the Issue of Foreign Shares by Listed Companies inside China of 1995 139
5.1.3.3.3. The Special Provisions on Share Issuing and Listing outside China by Listed Companies of 1994 140
5.1.3.4. Disclosure Rules under Departmental Administrative Rules 140
5.1.3.4.1. Disclosure Rules in the Accounting Standards Set by the Ministry of Finance 140
5.1.3.4.2. Disclosure under the Administrative Rules and Other Regulatory Rules of the CSRC 140
5.1.3.5. Disclosure Provisions Concerning Disclosure in the Listing Rules and Business Rules of the Stock Exchanges 142
5.1.4. Brief Comments on the Disclosure Regime 143
5.2. Major Rules Dealing with Disclosure in Fundraising 144
5.2.1. Disclosure in Initial Public Offerings (IPOs) 144
5.2.1.1. Sources of Rules on IPOs 144
5.2.1.2. IPOs and Offerings of Other Shares 145
5.2.1.3. The Verification System Versus the Examination and Approval System in Public Offers of Company Shares 146
5.2.1.4. Procedures for IPOs 150
5.2.1.5. Application Documents for IPOs 152
5.2.1.6. Prospectus 153
5.2.1.7. Procedures for B-Share Issuing 154
5.2.1.8. Overview of Disclosure Rules Regarding IPOs 157
5.3. Continuous Disclosure 157
5.4. Special Disclosure Rules of the CSRC 158
5.5. Major Issues on Disclosure 159
5.5.1. The Theories of Government Regulation of the Securities Market 159
5.5.2. Why Should the PRC Adopt Compulsory Disclosure? 160
5.5.3. Criteria for Disclosure 161
5.5.4. What Should Be Disclosed? 162
5.5.4.1. The Annual Report 165
5.5.4.2. The Half-Yearly Report 166
5.5.4.3. The Quarterly Report 166
5.5.4.4. The Interim Report 166
5.5.4.5. Related Party Transactions 167
5.6. The Formation of Disclosure Rules and Their Functions 168
5.7. Overview of the Corporate Disclosure Regime in the PRC 170
5.7.1. The Enforcement of Laws and Regulations 170
5.7.2. The Defects in the National Laws 170
5.7.3. How Should Foreign Experiences Be Adopted? 171
5.8. Conclusion: What Can the PRC Learn from the US Model in Terms of Disclosure? 171
Chapter 6 The State of the Securities Market and Disclosure in the PRC 175
6.1. The Development of the Securities Market 175
6.1.1. Re-emergence of the Securities Market in the PRC 175
6.1.2. The History of Securities Markets in China before 1949 177
6.1.3. The Securities Market after the Founding of the PRC 179
6.1.4. The Securities Market Since the 1980s 179
6.2. Listed Securities 184
6.2.1. A-Shares and B-Shares in the Domestic Markets 184
6.2.2. Four Types of Shares in Shareholding Companies Converted from SOEs 186
6.2.3. Bonds 193
6.2.4. Funds 195
6.3. Opening of the PRC Securities Market after Its WTO Accession 196
6.3.1. Means for Share Issuing 196
6.3.2. Formation and Abolition of the Quota System for Share Issuing 197
6.3.3. From an Examination and Approval System to a Verification System 199
6.3.4. The Main Board and the High-Tech Board 200
6.4. Investors in the Securities Market 201
6.5. Securities Companies 201
6.6. Classic Cases Involving Disclosure on the PRC Securities Market 202
6.6.1. The Baoyan Incident 202
6.6.2. The Case of Beihai Zhengda Company's Takeover of the Shares of Susanshan Company 203
6.6.3. The Qiongminyuan Case of a False Financial Report 203
6.6.4. The Chengdu Hongguang Case of Profits Forgery and Fraudulent Listing 204
6.6.5. The Yinguangxia Fraud Case 204
6.6.6. Hainan Kaili Company v. the CSRC 205
6.6.7. Reasons for the Frequent Occurring of False Disclosure Cases 205
6.7. Exchange and Cooperation with Securities Regulatory Bodies in Other Countries 206
6.7.1. The International Organization of Securities Commissions 206
6.7.2. The International Accounting Standards Committee 207
6.7.3. Raising Capital from Abroad 207
6.8. Conclusion 208
6.9. Information Availability, Mechanism for Enforcing Securities Regulations, and Remedies for Investors Who Have Suffered Losses 210
6.9.1. Information Availability 210
6.9.2. Information Availability under the Law and in Practice 212
6.9.3. Bodies Involving Enforcement of Securities Regulations 213
6.9.4. The Powers of the CSRC Dealing with Cases Involving Contravention of Disclosure Provisions 214
6.9.5. The Remedies Available to Investors Who Have Suffered Losses 219
6.9.5.1. Administrative Remedies 219
6.9.5.2. Criminal Remedies 219
6.9.5.3. Civil Remedies 220
6.9.6. Conclusion 221
Chapter 7 Key Elements of the Australian Corporate Disclosure Regulatory Regime 223
7.1. Introduction 223
7.2. The Brief History of Australian Securities Markets 226
7.2.1. The Emergence and Development of Securities Markets in Australian Colonies before 1900 226
7.2.2. The Movement towards a Uniform Companies Act and a Uniform Securities Market since the 1930s 230
7.2.3. Current Development of the Securities Markets in Australia 237
7.2.3.1. Stock Exchange Automated Trading System(SEATS) 238
7.2.3.2. Clearing House Electronic Sub-register System(CHESS) 239
7.2.3.3. Influence of Foreign Markets 239
7.2.4. Financial Disclosure and Committees of Enquiry in the Process of Corporate Law Reform 240
7.2.4.1. The Select Committee on Joint Stock Companies and the Joint Stock Companies Acts of 1844 and 1856 240
7.2.4.2. The 1895 Davey Report of the UK,the Companies Act of 1896 (Victoria),and the 1906 Loreburn Report of the UK 241
7.2.4.3. The Greene Report of 1925-1926 and the Companies Act of 1929 of the UK 242
7.2.4.4. The Cohen Report of 1945 of the UK 242
7.2.4.5. The Jenkins Committee Report of 1962 of the UK 243
7.2.4.6. The Eggleston Committee Report of 1970 243
7.2.4.7. The Rae Report of 1974 243
7.2.4.8. The 1975 Corporations and Securities Industry Bill 245
7.2.4.9. The 1983 Green Paper 245
7.2.4.10. The Griffiths Report of 1989 246
7.2.4.11. The CASAC Report of 1991 and the Lavarch Committee Report of 1991 247
7.2.4.12. The 1992 Cadbury Report of the UK 254
7.2.4.13. The Ramsay Report of 2001 255
7.2.4.14. Principles of Good Corporate Governance and Best Practice Recommendations of the ASX Corporate Governance Council of 2003 and Its Amendments 256
7.2.4.15. The HIH Royal Commission Report of 2003 256
7.2.4.16. The Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act of 2004 (The CLERP 9 Act) 257
7.2.5. Overview of the Formation and Development of Australian Securities Regulatory Regime 258
7.3. The Establishment and Development of the Disclosure Regulatory Framework in Australia 259
7.3.1. The Sources of Corporate Disclosure Rules in Australia 261
7.3.2. What Information Should Be Disclosed? 264
7.3.2.1. Prospectus and Other Forms of Disclosure for Fundraising in the Primary Market 264
7.3.2.2. Periodic Disclosure in the Secondary Market 265
7.3.2.3. Continuous Disclosure 267
7.3.2.4. Specific Disclosure 270
7.3.2.4.1. Content of Specific Disclosure 270
7.3.2.4.2. Disclosure of Corporate Governance Practices 271
7.3.2.4.3. Disclosure of Directors' Remuneration 272
7.3.2.4.4. Disclosure of Short Selling 272
7.3.3. The Establishment of a Mandatory Disclosure Regulatory Regime in Australia 273
7.3.4. Standards for Disclosure 277
7.3.4.1. Statutory Standards for Financial Reporting 277
7.3.4.2. Professional Standards for Disclosure 277
7.3.4.3. The Disclosure Standards of ASIC 278
7.3.5. Duty of Disclosure: Does a Company Director or the Company Owe Such a Duty to Shareholders? 279
7.3.6. The Theoretical Debates over Mandatory Corporate Disclosure 282
7.3.6.1. Unequal Possession of Information among Investors 283
7.3.6.2. Monitoring of Management 284
7.3.6.3. The Social Waste Hypothesis 285
7.3.6.4. The Public Good Hypothesis 286
7.3.6.5. The Public Choice Theory 287
7.3.6.6. The Efficient Capital Market Hypothesis 287
7.3.7. Overview of the Establishment of the Australian Securities Regulation Framework 289
7.4. The Participants of Securities Regulation and Their Roles in Disclosure Regulation 290
7.4.1. The History of ASIC 290
7.4.2. Functions and Powers of ASIC 291
7.4.3. Functions of the ASX in Disclosure Regulation 293
7.4.4. Functions of Corporations and Markets Advisory Committee 295
7.4.5. Quality of Disclosure in Australia 296
7.5. The Australian Securities Market and Globalization 298
7.6. The Securities Disclosure Regime in Australia and Its Adoption of Foreign Experiences 298
7.6.1. The Influence of English Law 299
7.6.2. The Influence of US Law 299
7.6.3. The Canadian Influence 300
7.7. Conclusion 301
Chapter 8 Conclusions and Suggestions 303
8.1. Introduction 303
8.2. Law as Culture 305
8.3. Law as Politics 307
8.4. Law and Its Economic Implications 308
8.5. The Establishment and Development of the PRC Corporate Disclosure Regime: What Has Been the Effect? 309
8.6. The Choice of Foreign Corporate Disclosure Models and Its Impact on the PRC's Practices 311
8.7. Directors' Duties of Disclosure 312
8.8. Shareholders' Remedies 312
8.9. Conclusion and Suggestions 314
Bibliography 319
Index 345