| This study examines corporate governance reforms in China as an economy in transition from central planning to the market in the context of globalization and the country's accession to the World Trade Organization (WTO), which serves as an example to illustrate the benefits of a gradualist transition strategy emphasizing proper sequencing and pacing of reforms at different stages of development.; In terms of the analytical framework, this study proposes a dynamic theory of corporate governance to interpret China's experience of corporate governance reforms and related financial reforms during its transition. This theory crystallizes the merits of staged corporate governance reforms that emphasize the proper sequencing and pacing at different stages of development, as opposed to the radical privatization approach adopted by Russia, known as "shock therapy." At the centre of this dynamic theory of corporate governance is the claim that supporting or complementary legal and institutional reforms aimed at providing investors with effective protection and ensuring the proper functioning of basic market mechanisms, such as banking and stock market reforms, should proceed prior to, or alongside, privatization in an economy in transition.; According to the dynamic theory of corporate governance, the central argument of this study is that for transition economies, there is no universal path to a market economy and the radical approach of mass and rapid privatization that had been endorsed by neoclassical economists but regrettably failed in Russia compares unfavorably with the gradualist strategy adopted by China. Given the existing constraints on reforms imposed by China's limited political resources, underdeveloped legal environment and inadequate institutional, regulatory and human capital, it makes great sense for the country to adopt a gradualist strategy for corporate governance reforms. China's experience has demonstrated that an "institutional vacuum" should be avoided in the process of a country's transition from a command economy to a market economy. Meanwhile, mutually supporting and complementary structural reforms of China's enterprises, banks, and stock market should proceed hand in hand in order to achieve synergies and effective and sustained results during the transition. |
