China’s “Belt and Road” initiative (BRI) describes a vast international system of trade facilitation, infrastructure development, investment, and financial integration. With over 80 countries and regions participating in it, its touchstones are interconnection among states and their co-operation for mutual benefit.
Institutional support for the BRI is provided by sources such as the Asian Infrastructure Investment Bank and the New Development Bank.
The BRI offers huge trade and investment opportunities in BRI projects and with Chinese companies. The realisation of these opportunities is dependent on potential investors having adequate access to quality information about Chinese companies, essential for the necessary assessment of risks and returns that underlies investment decisions.
In their note, “More Business Opportunities or Higher Legal Risks under the Belt and Road Initiative?”, in the Company and Securities Law Journal (Vol 36 Pt 8), Professor Say Goo and Dr Heather Lee consider China’s legal framework for ensuring company information disclosure, and identify deficiencies in that system in terms of coverage, implementation, and enforcement.
China’s laws and regulations certainly stipulate information disclosure requirements for companies, including in the: Company Law of the People’s Republic of China 2018; Accounting Law of the People’s Republic of China 2017; and Securities Law of the People’s Republic of China 2014. However, shortcomings include discrepancies in the treatment of different types of companies (eg limited liability companies and joint stock companies), and insufficient provisions requiring the disclosure of connected transactions, which are “a common phenomenon in China”.
More pressing perhaps for Goo and Lee, is the insufficiency of mechanisms for giving effect to the information disclosure provisions. They note a lack of details for implementation – “how, when and where … information should be disclosed”. For example, decisions by Chinese courts granting claimants rights of inspection under the Company Law (they cite a number of these decisions) tend to lack specificity as to the duration and venue of inspection.
“Clear procedural details,” say Goo and Lee, “can help shareholders gain easy access at a reasonable time for inspection and photocopying of company documents.”
The authors also find sanctions for non-compliance with the information disclosure requirements under Chinese law, weak or non-existent. They argue that sanctions should be proportionate and effective, so as “to mitigate the opportunistic behaviour which definitely negatively affects the confidence of the investors of BRI”.
Access to “meaningful, timely, and accurate” information about companies would seem to be an essential prerequisite to building strong business relationships. It is surely foundational to the BRI fulfilling its promise of creating a collaborative, integrated, mutually beneficial, multi-national economic system.
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