Directors' Duties Under Chinese Law: A Comparative Review

Abstract

The terms "one-tier-board system" and "two-tier-board system" are customarily used to classify corporate governance systems of different jurisdictions. There are also other species of systems that do not strictly fit in any of the two major descriptions.1 Nevertheless, it has been the trend in the development of all systems that the centre of corporate governance shifts from the members' meeting to the board of directors. Nowadays, the powers of corporate management are basically conferred on the board of directors in most systems.2 Directors thus become crucial to the commercial performance of corporations and are held accountable for the conduct and activities of corporations. Consequently, directors have been subject to increasing legal responsibilities. China is a latecomer to corporatisation. In China, corporatisation has been a means of facilitating the country's enterprise reform - reforming state owned enterprises into modern corporations.3 The enactment of the 1993 Company Law of the People's Republic of China (the 1993 Company Law) was one of the products of China's enterprise reform efforts. The 1993 Company Law was amended twice since its coming into effect.4 An advantage of being a latecomer is that China has the opportunity of assimilating relevant and useful heritage and incorporating advanced experience into its own practice. Indeed, China has endeavoured to fully take such advantage in the process of reforming its economic structure and modernizing its legal system. Corporate legislation and practice in China particularly illustrate this point. The 1993 Company Law is an outcome of both common law and continental law influences.5 Corporate practice in China in the past ten years has further demonstrated that the Chinese have made great efforts to build up a corporate system which is close to the standard practice of other influential corporate systems, and, in the meantime, is applicable to its particular social and economic situations.6 It is therefore interesting to have a close look at the Chinese treatment of directors' duties, which is a combination of the strengths of different systems. This article attempts to provide readers with an overview of directors' obligations in China from a comparative perspective in order to draw the readers' attention to the current development of Chinese corporate legislation and practice, and how it affects the duties of company directors.