Petro China Corporate Governance

PetroChina Corporate Governance

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PetroChina Corporate Governance

Foreffective economic develop in a country to take place, there is aneed for research as well as transformation in the control ofbusinesses in a country. There is also a need for different countriesto come together and make policies which would govern transactionsbetween these countries. China, being one of the strongest economiesin the world has gone through some transformations to be where it isnow. These changes have taken place after thorough research,partnership, and change in business governance systems from federalgovernment control to cooperate governance (Centerof Asian Business Cases, 2002). In this paper, we will have adiscussion on the impact of Cooperate system in China as well havean analysis on Petro China corporate governance.

Thecorporate governance has played a huge role in the Chinese capitalmarket. Through corporate governance, China as was able to enter intointernational share offering, identifying and exploiting anyavailable market. Through Cooperate Governance, Companies such asPetro China, China Mobile, China Unicom and Sinopec, were able toraise US$ 20 billion. Also, through the Cooperate Governance, TheChina Securities Regulatory Commissions (CSRC) of several companiesgot removed from the mainland stock exchange due to poor performanceand lack of transparency. The delisting was done to avoid more severelosses caused by these enterprises (Center of Asian Business Cases,2002).

Eventhough China adopted the corporate governance so as to enter theinternational market, there are some differences in the internationalstandard and the Chinese corporate governance. The differencesinclude the inability of banks to provide an insight into the controlof corporate creditors. Secondly, one decision maker could control acompany. Thirdly, low participation of shareholders and poorcorporate structure. Also, the supervisors could not be able toappoint or dismiss director managers who did not now their roles andfinally, there was no relationship between companies’ market value,intrinsic value as well as governance (Centerof Asian Business Cases, 2002).

ThePetro China corporate model has some problems associated with itwhich include, CNPC being the mother and the major shareholder atPetro China controlled almost every activity carried out by thecompany. This command created a concern where there was a risk ofother shareholders not benefiting from the company`s income. Also,since the State-owned the CNPC, there was a concern about the effectsof the ownership to Petro China strategy as well as its dividendpolicy. Also, almost all the directors of Petro China wereindividuals with a close relationship with the government some ofthem even worked for CNPC. This form of governance put Petro China ata place where it was impossible for them to make their decisions(Center of Asian Business Cases, 2002).

Forfurther reforms in Petro China corporate governance system, there isa need to ensure that Petro China is independent of its mother CNPC.We have seen that what prevented development in Petro China was thelack of independence from CNPC which chased investors away. By makingthemselves independent, the company will be able to make itsdecisions and therefore maximize profit enough for shareholders. Thecompany should also increase the number of independent executivedirectors while minimizing nonindependent directors. By decreasingthe number of non-independent directors, Petro China will be able tobe independent of external influence and thus make their decisions.Therefore, the company should ensure that there is no room formanipulation by the government or the mother company (Center of AsianBusiness Cases, 2002).

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Fromthe paper, we have discussed, the corporate governance show us thedistribution of rights among individuals participating in thebusiness. We have also seen how the corporate governance matters tothe Chinese capital market, where the management brought huge profitsto Chinese companies. Finally, we have studied Petro China corporategovernance model and all its challenges as well as the ways it shouldbe improved. Since the major problem of Petro China corporategovernance model was manipulation, then the solution is avoidingmanipulation.

References

Centerof Asian Business Cases. (2002). Petrochina Corporate Governance WithChinese Characteristic, 20, 1-9.