Governance, To Introduce Foreign Strategic Investors, With China's State-owned Commercial Banks

The new round of the state-owned banking system reform which started in 2003 focused on improving the banks'corporate governance. The introduction of Foreign Strategic Investors (FSIs) is a key step in the reform. So, this paper mainly researches the relationship between the introduction of FSIs and corporate governance of state-owned banks.The background and importance of this subject, and literature related are reviewed in the first chapter. The second chapter provides a theory framework by introducing the theory of corporate governance and the effect of large minority shareholders on corporate governance. The large minority shareholders are similar to FSIs in characters. The third chapter retrospects the earlier reform of state-owned banks, and analyzes the policy of introducing FSIs. Based on the theory introduced in the second chapter, the fourth chapter investigates the practice of FSIs in improving corporate governance of state-owned banks, such as Bank of China, China Construction Bank and Industry and Commercial Bank of China. In final part, the paper assesses the effect of corporate governance improvement of state-owned banks influenced by FSIs. Furthermore, the paper analyzed the risk of introducing FSIs.The main findings of this study are as follows:1. According to Jean Tirole's"The theory of corporate finance", a kind of investors have the ability of suggestion in supervising. The paper not only studies the channel of FSIs enhancing the corporate governance of state-owned banks, but also investigates the effect of the FSIs on improving the management experience.2. The corporate governance mechanisms which FSIs bring to the state-owned banks include diversifying ownership structure, and rationalizing directorate, furthermore, the FSIs can play an active role in decision-making mechanism, incentive-restraint mechanism and supervise mechanism. The FSIs influence the bank's management by taking positions on the board and in the management.3. FSIs exert a positive influence on improving corporate governance and bring a good efficiency on state-owned banks. However, there are still risks in selecting cooperator and determining cooperation term.