Petrochina Case Analysis
PetroChina Case Analysis
The article “PetroChina: International Corporate Governance with Chinese Characteristics” describes the major concerns about PetroChina’s corporate governance when and after it was listed on NYSE and HKSE, which was the first Chinese state-owned enterprise launched IPO overseas. This paper is based on the information provided by the article and will discuss in three aspects: Firstly, why corporate governance was important for China’s SOEs? Secondly, what were the special problems associated with PetroChina’s corporate governance model and what could be done to improve it? Finally, the postscript: the things I learn from this case study.
Part I
Corporate governance is important for companies all around the world since it works as an image to investors as well as an instrument to ensure companies’ operational performance. However, corporate governance may serve an even more important role in developing markets. Take China for example, the reasons can be divided into 3 aspects: external market imperfection, internal governance flaws and the urge to push forward economic reform.
External market imperfection
The capital market in China was rather weak and imperfect around the time of 2000. Share held by state or corporate persons in former SOEs was forbidden to be traded until 2001. The government was the largest shareholder of all SOEs and controlled the mutual funds and the Securities Regulatory Commission. Banks in China lacked discretion and independent judgment to oversee the operation of their borrowers. All of these made external stakeholder unable to efficiently act as a check against the SOEs.
Internal governance flaws
China has a long history of government or party control over companies ever since 1949. Although the government had made notable economic reforms after 1978, which came with a series of administration changed and new laws promulgated, China’s SOEs still suffered poor internal corporate governance: Too much
The article “PetroChina: International Corporate Governance with Chinese Characteristics” describes the major concerns about PetroChina’s corporate governance when and after it was listed on NYSE and HKSE, which was the first Chinese state-owned enterprise launched IPO overseas. This paper is based on the information provided by the article and will discuss in three aspects: Firstly, why corporate governance was important for China’s SOEs? Secondly, what were the special problems associated with PetroChina’s corporate governance model and what could be done to improve it? Finally, the postscript: the things I learn from this case study.
Part I
Corporate governance is important for companies all around the world since it works as an image to investors as well as an instrument to ensure companies’ operational performance. However, corporate governance may serve an even more important role in developing markets. Take China for example, the reasons can be divided into 3 aspects: external market imperfection, internal governance flaws and the urge to push forward economic reform.
External market imperfection
The capital market in China was rather weak and imperfect around the time of 2000. Share held by state or corporate persons in former SOEs was forbidden to be traded until 2001. The government was the largest shareholder of all SOEs and controlled the mutual funds and the Securities Regulatory Commission. Banks in China lacked discretion and independent judgment to oversee the operation of their borrowers. All of these made external stakeholder unable to efficiently act as a check against the SOEs.
Internal governance flaws
China has a long history of government or party control over companies ever since 1949. Although the government had made notable economic reforms after 1978, which came with a series of administration changed and new laws promulgated, China’s SOEs still suffered poor internal corporate governance: Too much