Global institutional investors (GIIs) are prepared to pay 28.5 percent on premiums for Chinese companies that enforce good corporate governance standards, according to a survey released Monday by Hong Kong-based researchers.

The joint study by CPA (Certified Public Accountant) Australia Hong Kong China Division and the Hong Kong Baptist University targeted investment bank executives, fund managers, research analysts and chief investment officers from a total of 664 global institutional investors from Asia, Europe and North America, all with investments in China equities.

Nearly 60 percent of the respondents said the term of their investments in China equities were less than three years while twenty-six percent opted for a term of three to six years and 18 percent chose six years or more.

Simon Ho, one of the survey leaders and director of the Center for Corporate Governance and Financial Policy at the Baptist University, said GIIs are increasingly active in the mainland market with reform programs such as QFII (Qualified Foreign Institutional Investor).

The fact that up to sixty percent of the respondents opted for a term of less than three years "does not necessarily mean a lack of confidence in the market prospect," Ho said. "It was just natural with institutional investors expecting high returns."

The survey identified a lack of enforcement, disclosure and shareholder protection as the key barriers facing GIIs in deciding whether to invest in China or not.

Sixty-seven percent of the participants rated the overall corporate governance in China as unsatisfactory while 71 percent said they avoid investing in Chinese companies with poor corporate governance practices.

The phenomenal growth of the equities market in China has given rise to "a demand for greater levels of corporate governance to be applied," said Richard Ho, one of the leaders of the research and deputy president of CPA Australia Hong Kong China Division.

Much higher investments would be expected from global institutional investors if the mainland companies improve their corporate governance, thereby helping further strength the mainland financial market for many years to come, he added.

Seventy-one percent of the respondents said they would increase the size of their investment if corporate governance improve while 44 percent said their investment term would be longer and 41 percent said they would be prepared to pay a higher premium.

Respondents identified the top three problems affecting corporate governance in the Chinese mainland as a lack of enforcement of rules and regulations, insufficient disclosure requirements and inadequate shareholder protection.

Top priorities in reforms to improve corporate governance should be in business ethics and culture, transparency of disclosure and financial reporting, the concept of fiduciary duties, shareholder value and disclosure timeliness, they suggested.

(Xinhua News Agency October 9, 2007)