Corporate Governance and Property Rights Infrastructure: The Experiences of Hong Kong and Lessons for China
Using Hong Kong’s experiences, this paper examines how corporate governance is closely related to capital market development in particular and property rights infrastructure in general. Good corporate governance is achieved through self-discipline, regulatory discipline and market discipline. Capital market discipline is critical. The role of the capital market is to provide low cost financing to well-performing firms, while rejecting finance to poor-performing firms. A well-functioning capital market requires clear delineation, efficient exchange, and effective enforcement of property rights. These functions rely heavily on an array of supporting institutions, or as defined in this paper, on the property rights infrastructure (PRI). A major task of the transition from a planned economy to a market economy is to build a strong and well-functioning PRI. Good corporate governance and a competitive market economy can only be built upon a strong PRI. We argue that China’s economic reform has now advanced to a stage in which more attention should be turned towards developing an integrated property rights infrastructure so as to derive lasting benefits to the economy. Hong Kong, which has a well functioning PRI, could serve as a live knowledge base for building and maintaining a modern PRI in China.