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WB President: Urgent to Improve Corporate Governance in Post-WTO China

President of the World Bank Group James Wolfensohn Sunday suggested that China improve the corporate governance of its enterprises, in order to attract more foreign investment and survive international competition following its WTO entry.

China has taken a major step toward greater involvement and a more prominent role in the global community with its WTO entry, Wolfensohn told an international symposium on corporate governance reform in Post-WTO China that opened Sunday in Beijing.

However, the financial crisis in Asia indicated that integration into the global economy without the proper institutions of governance can create vulnerabilities that partially reverse gains in development and poverty alleviation, he added.

"The principle of achieving an efficient corporate governance is simple and clear, but China has special problems as a country with a huge number of State-owned enterprises," Wolfensohn said.

A World Bank report, titled "Corporate Governance and Enterprise Reform in China" released Sunday, pointed out that corporate governance will continue to be weak in many State-owned enterprises if the role of State ownership remains ambiguous and the managers are still free from supervision by the board of directors.

The report also noted that poor governance in non-State companies and the interests of small investors lack protection as the culture of openness, transparency and credit has not been developed in Chinese society.

"But we are very glad to see the growing public awareness in China of the importance of good corporate governance," Wolfensohn said. "A number of recent important initiatives, such as establishing a system of independent directors for listed companies and introducing a code of corporate governance, have revealed the increased importance given by the authorities to corporate governance practices in China."

The World Bank report revealed that more than 80 percent of small- and medium-sized companies have been restructured, while private and overseas investors have been introduced. In addition, about 1,300 large companies have been listed on stock markets.

As China begins to implement its commitments to the WTO, the policy focus on corporate governance in China is sending a strong signal that the government is committed to further market reforms, Wolfensohn noted.

This in turn is a kind of reassurance that the significant gains China has made in development and poverty reduction over the last two decades will be sustained and enhanced, he added.

Sunday, Wolfensohn also addressed the Asia-Pacific Economic Cooperation (APEC) Finance and Development Program 2002 Annual Forum that opened in Beijing on the same day.

He noted that challenges to the financial sector not only come from the efforts to develop sound banks but also from the building of capital markets, which will provide new financing means for companies, and reduce costs and risks.

The prerequisite for capital markets to flourish is to create a deep and liquid government bond market, Wolfensohn said.

Banks should do a better job of evaluating the performance and growth potential of small firms -- an area that is neglected by financial systems in many countries, he added.

(People's Daily May 27, 2002)

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