ACGA interview: Changing the game

What is your role at the Asian Corporate Governance Association (ACGA)

I am the research director for Hong Kong and China. I joined ACGA last April. Prior to that, I was the head of listing policy at Hong Kong Exchanges and Clearing, and before that I was in-house counsel at one of China's leading investment banks, China International Capital Corporation.

What have you found in your latest research

We're currently conducting a survey with CLSA on corporate governance across 11 markets in Asia called CG Watch. We took a delegation of our global investor members – around 100 corporate members which consist of major sustainability and pension funds – to China last year and also visited Beijing and Shanghai this summer to meet with regulators, listed companies and market intermediaries. Results will go public later this year, but we have an updated sense of where corporate governance is heading in China.

What corporate governance developments have you seen in China in terms of new laws and regulations Are they clear enough to guide better practice

ACGA held a joint roundtable with Haiwen & Partners as part of its Beijing trip. It was the first of its kind, where a non-profit organisation teamed up with a mainland law firm to discuss regulatory development. One topic discussed at length was the reform of state-owned enterprises (SOEs). Since the Third Plenum, the leadership has declared its commitment to the development of SOEs, which comprise most of China's listed companies. The market has seen some progress towards mixed ownership. For instance, Sinopec is opening up 30% of its sales unit to private and social capital. There are drives to make the board structures more Western and similar efforts are also evident in other sectors like telecommunications. The State-owned Assets Supervision and Administration Commission has also announced how it can further SOE reform. Corporate governance has improved in the PRC by means of reducing the administrative control or influence in commercial enterprises. It's a progressive opening up.

What are the latest developments for the regulatory environments of the financial and stock markets

Another important development is the resumption of the domestic IPO market. The China Securities Regulatory Commission chairman Xiao Gang has said that 100 IPOs will take place by the end of the year. But we have seen various trials and tribulations with the reopening of the IPO market – a deal got pulled at the last minute due to concerns of an over-significant shareholder sell-off and another deal featured curiously low issue prices. There are 90 to 100 million retail investors in the mainland so the challenges weigh heavily on the securities regulator. But introducing regulatory control is easier said than done.

Has the recent crackdown on corruption led to a significant or noticeable change in Chinese companies' corporate governance structures and practices

Our views are mixed. During our China trip we had an appointment with a company whose senior management was being investigated for corruption. Surprisingly, the company proceeded to confirm the meeting and actually invited us to ask about the investigation. Overall, we do see the mainland becoming more alert. The disciplinary unit in charge of corruption investigations is also stepping up. But we see competing dynamics; while we see the state leadership's commitment to cleaning up corruption, we do see corruption-related matters and challenges still popping up among Chinese companies.

Our 2012 survey ranked China 9^th out of the 11 Asian markets. It's a relatively low score compared with the leading markets like Singapore and Hong Kong. This is mainly due to corporate governance culture. China actually has good rules on corporate governance, but the challenge lies in implementation and operation in companies and their commitment to it as far as their senior management and board are concerned.

What is your advice for companies undergoing investigations

Ultimately it's a question of ethics and genuine corporate governance. There is pressure to stay competitive and therefore use the euphemism of flexibility. This is where the risk of corruption lies. The corruption crackdown and investigations are a stark but timely and poignant reminder that if you do not adhere to the genuine substance of corporate governance, the downside of non-compliance will wipe out any potential upside of commercial benefits.

How do you feel about regulatory scrutiny on corporate governance in China relative to other jurisdictions in Asia

Regulators are definitely increasing their efforts in areas such as listing and insider trading. They have also increased their manpower and personnel on enforcement, but how much manpower is needed to address the 100 million retail investors in China Elsewhere, the China Banking Regulatory Commission released a corporate governance guideline for commercial banks last July and the Ministry of Finance is also taking charge on audit reforms. All in all, it is fair to say that the central leadership is committed to changing the game and improving corporate governance culture. Nonetheless, we're talking about a market and culture that has been fraught with challenges for years, so things will progress slowly but surely.