The corporate governance crises in venture capital investment of China: Case studies and legislative response

Venture capital funds have been playing an increasingly important role in corporate governance of Chinese companies. Owing to the dominating status of the state-owned enterprises in Chinese economy, however, a contractual and market-based company law system has not been fully adopted by the Chinese legislators or regulators, which has substantively threatened the efficiency of venture capital investment in China. This article attempts to 1) reveal the nature of the corporate governance crises in the venture capital industry of China by carrying out detailed case studies of the most typical corporate governance events in the venture capital investments of China; and to 2) explore a feasible approach to striking a balance of interests of heterogeneous shareholders in Chinese corporate governance via critically reviewing the emerging class share system in the Chinese commercial law system. Although the on-going legal reform of the Chinese company law is beneficial for mitigating the conflict between the venture capital shareholders and controlling shareholders in Chinese companies, it may be impractical to transplant a comprehensive legal system of dual-class shares in the Chinese company law in a short future, since the state-owned economy may still impede the advancement of a liberalistic reform