Enhancing transparency through company law reform in China

A growing awareness of corporate social responsibility (CSR) is always reflected by an increase in the number of CSR or sustainability reports published, as well as in the provision of CSR-related information. The growing importance of socially responsible investment and of the media are converging, and an increasing awareness of companies’ social, ethical and environmental performance calls for greater transparency in reporting. Corporate disclosure is one of the most common means of ensuring adherence to corporate governance principles such as fairness and transparency. This issue is particularly important for China, where guanxi and government control are regarded as key elements for business transactions. This article sets out to explore the emerging practice of CSR reporting in China to examine whether current practice is motivated by the purpose of discharging accountability to relevant stakeholders, and also whether it is helpful to transplant the UK’s ‘strategic report’ system to China. It is salient to discuss why the CSR reporting system is important to China in order to promote CSR and a harmonious society, and how to enforce the scheme by mandatory regulations and voluntary guidelines. If a CSR reporting system is established, there is likely to be resistance to major regulatory changes. It would be desirable to maintain a balance between efficient disclosure and increased burdens for companies in order to achieve the ultimate purpose of boosting the competitive advantages of companies through increased transparency via corporate disclosure.