The 15th National Party Congress of the Communist Party of the People’s Republic of China (“PRC” or “China) opened on September 12, 1997 with a much heralded call by Secretary General Jiang Zemin to intensify reformation of the state-owned sector. Jiang provided critical ideological authorization of the selling down of the State’s interest in China’s state-owned enterprises by equating “state ownership” with “public ownership” and then “ownership by the public,” declaring:
Public ownership can and should take diversified forms… even if the state-owned sector accounts for a smaller proportion of the economy, this Will not affect the Socialist nature of the economy.
The key vehicle for this newly invigorated reform, and in fact the process of restructuring that has been underway for several years, is China’s basic corporate statute, only three years old. The promulgation of the Company Law of the People’s Republic of China (the “Company Law”) in late 1993 was met with a chorus of praise in the official Chinese press and abroad. However, the immediate reaction among the more reform-oriented members of China’s securities regulatory authorities, the nascent Chinese securities bar, and foreign bankers, lawyers and accountants intimately involved with the PRC’s first securities offerings in Hong Kong and New York, was less sanguine. In many cases, the Company Law was privately termed a “disaster,” a keen expression of conservative compromises or the wholesale avoidance of difficult issues implicit in China’s transition from state ownership and the mandated allocation of capital to a “socialist market economy.” Some PRC professionals and regulators even expressed the opinion that China’s developing body of corporate law and securities markets would have been better off without the new legislation, and with continued reliance on the then-existing patchwork of laws, regulations, notices, opinions and standards which provided the legal basis for China’s earliest corporate reorganizations and public issuances of stock in Shenzhen, Shanghai, Hong Kong and New York.