During the investigation from now until November, the State Economic and Trade Commission will focus on the behavior of shareholders, while the securities regulator will review the conduct of listed companies, according to Jiang Qiangui, vice-minister of the State Economic and Trade Commission.

A modern corporate system is the key to the sustained growth of Chinese enterprises and a healthy stock market, Zhou Xiaochuan, chairman of the securities regulator, said at a national teleconference in Beijing at the weekend.

Improving such a system in listed companies is also crucial to the development of China's State-owned enterprises, given that listed State-owned enterprises contributed 63 percent of the total profits generated by State firms in 2000, said Jiang.

China had registered 1,169 listed companies by last month. They have a market value of 4.55 trillion yuan (US$548.2 billion), representing half of the country's gross domestic product, according to Zhou.

Although the listed firms have made headway in improving corporate governance and internal management, they have yet to exert themselves to meet the high standards of a modern corporate system, Zhou said.

The State holds the majority of shares in many listed companies. Both Zhou and Jiang said that this dominance threatens to undermine the interests of small and medium-sized shareholders.

In particular, some government departments and controlling shareholders have interfered with the operations of listed firms. Some listed companies are not genuinely independent from shareholders in terms of staff, finance, assets and business activities, Zhou said.

Another problem with listed companies is that some of them provide fake accounts and false information to fool investors, which adds to the risks in the securities market, Jiang said.

Furthermore, the listed firms have yet to adopt an income distribution system that gives enough incentives to good management performance, which a modern corporate system requires, Jiang said.

(China Daily May 13, 2002)