State-funded companies in China have undergone significant reforms in recent years, particularly with the amendment of the PRC Company Law in 2023. The new law, which came into effect on 1 July 2024, inserted a new chapter: Chapter 7 – Special Regulations for the Organisational Structure of State-Funded Companies. This chapter applies not only to wholly state-owned companies but also to other state-funded companies.
Definition of State-Funded Companies
According to article 168 of the 2023 PRC Company Law, state-funded companies refer to wholly state-owned companies and companies controlled by state-owned capital, including limited liability companies and joint-stock companies funded by the state. The chapter contains 10 articles and covers a range of issues, including the institutions that perform the duties of investors in state-funded companies and the way in which investor rights are exercised.
The role of party organisations in state-funded companies is also addressed in the new law. Article 170 makes provision for the role of party organisations in state-funded companies, stating that the organisation of the Communist Party of China within a state-funded company plays a leadership role in accordance with the provisions of the Constitution of the Communist Party of China.
Leadership Role of Party Organisations
Article 170 makes provision for the role of party organisations in state-funded companies, stating that the organisation of the Communist Party of China within a state-funded company plays a leadership role in accordance with the provisions of the Constitution of the Communist Party of China. Party organisations perform a leadership role in state-funded companies, researching and discussing major operational and management matters of the company, and supporting the company’s organisational bodies in exercising their functions and powers in accordance with the law.
The 2023 PRC Company Law provides a framework for the governance of state-funded companies, setting out the rules for the organisational structure of state-funded companies, including the role of party organisations, and providing a framework for the exercise of investor rights, which involves shareholder oversight and other key aspects.
State-funded companies will need to adapt their governance structures to comply with the new regulations. This may involve changes to the way that party organisations are established and operate within companies, as well as changes to the way that investor rights are exercised.
These reforms are a significant development.
Companies must stay up-to-date with the latest developments and ensure they are complying with the new regulations. As the reforms continue to unfold, the impact on state-funded companies will become clearer, and companies must be prepared to make further adjustments as necessary, considering the potential risks, such as hiring bias, that may arise from these changes.
