The influence of western banks on corporate governance in China

Abstract

This study draws on in-depth qualitative interviews to investigate the variety of institutional forces which influence the adoption of western corporate governance mechanisms in Chinese banks. Following path dependency models of institutional change it was shown that cognitive and normative institutions, including a ‘who you know’ or guanxi credit culture, mean that the practical influence of western banks on corporate governance reforms was perceived to be ineffectual in most cases. Given the failure of western credit-rating systems in the sub-prime crisis, it is likely that this perception will increase in the future. The majority of western actors believed that the main reason Chinese banks seek to co-operate with western institutions was to enhance the legitimacy of the Chinese bank in the global financial environment, rather than to actively change existing governance mechanisms.

Keywords:

• banking
• China
• corporate governance
• Guanxi
• institutional change
• legitimacy seeking

Acknowledgements

I am grateful to the Nuffield Foundation for supporting the fellowship and fieldwork associated with this research project. I would also like to thank Professor Malcolm Warner of the Judge Business Institute of Management at the University of Cambridge for invaluable academic support, friendship and advice.

Notes

1. Though this is partly due to the fall in market value of some western banks as opposed to the rise in Chinese banks per se.

2. Tier rating indicates the size of capital adequacy in the bank as assessed by regulators. Tier 1 represents a bank with more resources than a Tier 2 institution.

3. Names of banks are anonymized to protect confidentiality.