Developing a More Effective Chinese Company Law - From Hard Law to Soft Law in Corporate Governance

China has made great strides in moving to corporatize its business entities and introduce laws which have provided a legal basis for its newly corporatized business actors.

China has made great strides in moving to corporatize its business entities and introduce laws which have provided a legal basis for its newly corporatized business actors. These developments have sometimes been couched in somewhat loosely expressed rule of law terms, but China’s institutional infrastructure is not yet fully equipped to support greater privatisation and the dispersal of control in major business enterprises. China’s growing market economy has been overseen by an authoritarian State which has quite naturally sought to protect its own interests in large SOEs and other substantial corporate entities. 

Successive Chinese company laws have sought to bring China’s corporate laws closer to prevailing corporate law approaches found in western countries, thereby creating a well-developed body of seemingly  “hard” laws with “Chinese characteristics”. But, this has meant that the promise of a fully articulated and embedded Chinese company law remains elusive. Not surprisingly, China has sought to remedy this situation by looking to "soft law" ideas, such as ethical codes, codes of conduct and corporate social responsibility, to influence behaviour within its corporate entities. Such soft law approaches are well suited to the regulation of more globally active corporate entities. These soft law mechanisms are also often more attuned to Chinese cultural and political norms and may therefore be more likely to be embraced by Chinese enterprises, government agencies and industry bodies. 

This paper explores the extent to which the future development of China’s company law should be examined through the lens of soft law rather than through traditional hard law mechanisms, examining the strengths and weaknesses of this soft law pathway to normative development.

Professor Roman Tomasic is a Professor of Law in the School of Law where his teaching and research focuses mainly on Australian and comparative corporate and commercial law. He has worked in Universities in Australia, the United Kingdom, the United States and Hong Kong and remains a Visiting Professor of Company Law at the Durham Law School in the UK. He is also an Emeritus Professor of the University of Canberra.