TSINGHUA CHINA LAW REVIEW
Reconciling Dual Loyalties: Director Duties in “State-Invested Companies” under China’s 2023 Company Law
Created on:2025-01-03 21:03 PV:270
By Ben Hines |Articles | 17 Tsinghua China L. Rev. (2024) |   |   Download Full Article PDF

Abstract:

The ratification of significant amendments to the Company Law of the People’s Republic of China in December 2023 heralded comprehensive changes to China’s corporate governance regime. Under this reform, directors’ duties are outlined with greater clarity and specificity than before, and textually appear reminiscent of those imposed in various other jurisdictions. At the same time, questions arise as to the duties of directors in “State-Invested Companies”. In practice, there is no doubt that under the Chinese system directors of such companies will generally owe and act upon duties—legal, political, or otherwise—to both company and state. The question, therefore, is not if but how the legal basis of these duties is reconciled under the 2023a law. This article posits that this reconciliation ought not be approached through western common law fiduciary principles alone. Rather, it posits that when read with an understanding of the Chinese legal-political context there are three potential sources in the law itself which may legally ground such dual obligations. The vague drafting of directors’ duties provisions, the shareholder/director dynamic, and the ability for a State-Invested Company to arrange its articles of association such that these two interests may legally be conflated each provide a legal mechanism to import obligations to consider the interests of the state in addition to those of the company. Appropriately distilling these bases has important practical ramifications for investors in the Chinese market and their understanding of the potentially competing obligations acted upon by directors. It may also materially impact the exercise by these directors of their functions.

Keywords: Directors’ Duties; Fiduciary Duties; State-Invested Companies; State-Owned Enterprises; Company Law; People’s Republic of China; Articles of Association; Governance.