We see corporate governance in China entering a new era. China’s corporate governance reform, led by the State Council, stands out in Asia for its top-down approach and coordination with other agencies. Wide-ranging reforms are bolstering the governance of listed companies and institutional investors are being empowered to be active asset owners.
David Choa, Head of the Greater China Equities Team, Jane Ho, Head of Stewardship APAC, and Sifan Wu, Stewardship Analyst, discuss how these developments fit with our investment approach.
Board structures and value enhancement
State-owned enterprises (SOEs) have maintained the distribution of dividends and improved communications with investors: investor briefings have increased by 40% since 2022, reflecting previous reforms.1
In July 2024, a new company law took effect, aligning board structures in China with Western-style boards and enhancing shareholder rights. Key changes included:
- An audit committee replaced supervisory boards
- The fiduciary duties of controlling shareholders of a company have been established
- The threshold for the percentage a shareholder must hold to be allowed to make proposals was reduced from 3% to 1%.
We believe these developments are particularly positive for the Chinese market since 94% of listed companies have a controlling shareholder.2
The State Council has updated the National Nine Articles on improved listed company governance. A key focus was the creation of market value management guidelines. They include measures such as cash dividends, share buybacks, investor communication, information disclosure, mergers and acquisitions, stock options, and employee stock ownership plans.
The China Securities Regulatory Commission (CSRC) now requires companies listed on major indices to formalise their internal market value management policies. Any company trading at below book value for over a year must publicly disclose a valuation enhancement plan.
Market value management now forms part of the board of directors’ core duties, with SOEs subject to additional guidance including the incorporation of market value management into the performance review of senior executives. The CSRC has the right to issue regulatory orders and warning letters and can escalate issues to rectify non-compliant behaviour.
As of 30 April 2025, 400 issuers had disclosed a market value management policy, and 223 companies had published a value enhancement plan on the websites of the Shanghai, Shenzhen and Beijing stock exchanges. Of the top-20 A-share issuers by market capitalisation, 15 have formulated a policy, with eight (including five banks) making it public.3
Though it is still early days in terms of evaluating the effectiveness of these plans, the corporate governance reforms have coincided with a rising equity market. The Shanghai Stock Exchange Corporate Governance index (SSE CGI) had gained 34% from the lows of 2022 through the end of September 2025.
Bolstering stewardship in China
More recently, the Asset Management Association of China issued its Rules for Public Securities Investment Fund Managers Participating in the Corporate Governance of Listed Companies. These rules serve as China’s first stewardship code for the A-share market.
At its core, the code mandates public fund managers to engage ‘actively and normatively’ in corporate governance. It lays out concrete requirements for establishing internal governance structures, conflict-of-interest safeguards, and stewardship teams. Asset managers are required to formulate voting and engagement strategies, with annual public disclosure of voting records and rationales from 2026.
Environmental, social, and governance (ESG) considerations are integrated throughout, with asset managers expected to monitor the environmental and social performance of portfolio companies and take these factors into account in their voting and engagement activities.
The code goes further to promote specific engagement tools such as formal letters to company boards, public statements, shareholder proposals, and where necessary legal action.
This regulatory shift encourages institutional investors to play a more active governance role.
Our ESG integration approach
In our Greater China equities strategy, we place a strong emphasis on corporate governance. We believe that it can be both a source of risk and opportunity. Good corporate governance increases the likelihood a company is managed in the long-term interest of its stakeholders. We expect all companies in which we invest to comply with high corporate governance standards.
Corporate governance standards are reflected in our portfolios through our proprietary ESG scores for over 14,000 issuers. We embed ESG throughout the investment process, from universe screening to company level assessment and selection, portfolio construction and post-investment ESG monitoring and engagement. We believe this improves the odds of better long-term risk-adjusted returns.
Stewardship and engagement are equally important to our investment process. Our voting policy reflects our expectations, incorporating global best practices, and we engage regularly with issuers on corporate governance.
The Greater China Equities team partners with the in-house sustainability centre on both voting and engagement, leveraging both the investment team’s detailed knowledge of the companies as well as the corporate governance expertise of the stewardship team.
In 2024, we engaged with 17 issuers on governance topics. As an example, we took on one of China’s largest travel service providers to tackle governance weaknesses, business ethics, board independence and capital allocation.
A change for the better
We see the companies in our portfolios reaching out to investors more proactively. There is a renewed focus on shareholder returns and stock performance. We look forward to working more with like-minded domestic peers on engagement.
Aside from SOEs, the healthcare, information technology and consumer discretionary sectors have seen sustained improvement, outperforming other sectors in terms of governance scores. As of October 2025, the number of Chinese companies with a positive governance score in our investment universe was up by 66.26% over the past year. Governance has become a positive contributor to the ESG scores of these companies.
From a voting perspective, as corporate governance continues to improve and align with our policy in China, we expect our opposition rate to trend down over time. In 2024, we opposed 34% of management proposals such as re-election of directors and approval of accounts when governance standards did not meet our expectations.
China’s latest reform – the Corporate Governance Code – is currently under consultation. Corporate governance in China can yet be strengthened by the addition of robust board diversity requirements, the explicit recognition of investor stewardship and engagement, and meaningful mechanisms to evaluate the effectiveness of value management plans.
In summary, the outlook for corporate governance in China has improved significantly, and we will monitor the companies in our portfolios for further progress.
[1] Navigating China’s Evolving CG Landscape, ZD Proxy, July 2025
[2] 2024 A-share Market Proxy Review, ZD Proxy, Feb 2025
[3] ACGA Value Up, Asia Report
