China's Corporate Law is in desperate need of changes to adapt to the needs of the market economy, deputies to the ongoing National People's Congress session urged.
Deputies and legal professionals stress that the reform will require the revision of or scrapping of a host of laws.
Some experts pointed out that the biggest flaw in China's corporate law system is its classification of different forms of ownership. Besides the Corporate Law, enacted in 1993, China still has a law on State-owned enterprises and several regulations governing foreign-funded companies.
"It sounds odd to seek a modern corporate system on one hand, but label companies according to their ownership on the other,'' said Zhang Mingshu, a law professor at the Chinese Academy of Social Sciences.
He said the current corporate law system is a legacy of the planned economy and must be replaced by a uniform code governing all forms of ownership.
"Many dated corporate rules, such as investment limits, have become a major barrier to businesses' development,'' said Li Dongsheng, an NPC deputy and chairman of the TCL Group, an electronic company in South China's Guangdong Province.
The Corporate Law sets the ceiling of a company's investment at 50 per cent of its net assets to control economic bubbles.
Li said the limit is too strict and has curbed the expansion of domestic companies, many of whom are competing with established foreign companies.
He also warned that legal barriers had prevented the introduction of a lot of new technology.
The Corporate Law stipulates that intangible assets must not exceed 20 per cent of a company's subscribed capital.
The rule has prevented many cash-strapped inventors from taking commercial advantage of their genius, despite the booming of the high-tech and venture capital sectors worldwide.
Ironically, many places, such as Beijing's Zhongguancun High-tech Park, have already mapped out new policies to foster small high-tech firms regardless of the legal restrictions.
"Although the Corporate Law was amended in 1999, it is now outdated,'' said Yu Wen, an NPC deputy and vice-chairman of the Association of Industry and Commerce in North China's Hebei Province.
She said the lack of rules on merger and acquisitions has hindered the expansion of many companies.
Meanwhile, the government's tight control on incorporation is at odds with the market, she added.
The Corporate Law requires the establishment of a joint-stock company to be approved by a provincial government or a department appointed by the State Council. The criteria for issuing corporate bonds or getting companies listed is even stricter.
Other rules concerning the operation of companies, such as the Securities Law and regulations on corporate registration and bond issues, may all need to be revised accordingly, he added.
(China Daily March 16, 2003)
