Regulation, Puzzlement And Extrication: The Legal Road Of China's ESOP

Employee stock ownership plan (ESOP) refers to that an already incorporated enterprise divides its capital into equal shares and distributes them among its current employees. Employees who enter an ESOP acquire two statuses: employee and shareholder. The former owner of the enterprise must either entirely withdraw his investment or share the benefits (and risks) with the new employee-shareholders. Thus, ESOP can be seen as one path to diversifying investment in state-owned enterprises (SOEs).However, the government, through its command over SOE reformation, may end up distorting the transactional nature of ESOP by forcefully transferring its risk from enterprise owner to its employees. The government's attempts to regulate ESOP have caused more trouble than good and even violated the moral spirit and the principle of law. Thus, the heart of these regulatory problems does not lie with ESOP but with the government's regulatory interference.ESOP is a benefit-sharing process. The actual implementation of ESOP is often accompanied by role changes and face conflicts of interests among the participating parties. Although the Chinese government has sought to control this process by making decisions for the parties, its dual status as both social regulator and enterprise owner means that the government is far from a neutral or disinterested third party. State interference has not only failed to help harmonize the interests of the different parties, but even deepened the contradictions and conflicts already present in the ESOP system.Government ESOP policy has less to do with solving real problems than with realizing its own policy objectives. This characteristic sets China's ESOP policy apart from other countries, such as the U. S., U. K. and Russia. Thus, to attempt to solve the current regulatory puzzlement by simply improving existing laws is insufficient. We must look beyond the letter of the law to consider its underlying legislative policy.Only if the government abstains from excessive and unnecessary regulation will it become possible for the parties involved in ESOP to harmonize and arrange their own interests and affairs. Likewise, only if the government returns to its proper position as an outside observer and final arbitrator of disputes can the legislative policy related to ESOP turn itself around. Above all, any resolution to the problems of China's ESOP ultimately depends on the government's willingness to transform itself and its current "double-identity."Through the use of a variety of analytical methods - including case analysis, semanticanalyses, historical inquiry and comparative study - this dissertation discusses the relationship between government regulation policy and China's actual experience with the ESOP system. I also draw from the research results of related disciplines, such aseconomics and sociology, for theoretical and factual support.This dissertation is divided into seven chapters. Aside from the first and last chapters (introduction and conclusion, respectively), the remaining chapters are organized as follows:Chapter Two reviews the past and present of ESOP in China. By reviewing the historical route that ESOP has taken in China, I sketch out the main features of ESOP regulation. Lastly, I discuss ESOP's categories and the object, method, content of regulation.Chapter Three takes an in-depth look into the puzzlement of current ESOP regulation. First, I analyze the criticisms against "unregulated" inside employee shares (IES) - one variety of China's ESOP. I argue that excessive regulation has forced China's IES to fall into stagnancy and become a major obstacle to regulation itself. I then go on to examine how present regulation violates established legal theory and distorted the nature of ESOP.Chapter Four focuses on the government's regulation of ESOP and the causes for its current puzzlement. First, I argue that government regulation is in fact a form of path dependency: a vestige of the planned-economy era's "omnipotent" state into the current reform...