Nearly one-third of the 155 respondents, which included asset managers and institutional investors, said it was “very difficult” to engage with China A-share companies, while 68% believe it was “somewhat difficult”, findings from an ACGA report published this week show. Only 2% said it was not difficult.
Successful outcomes are also weak. Only 20% of the respondents said that company engagement with China A-share companies led to constructive outcomes.
Those surveyed gave different answers why the process of engagement was difficult. For example, some believe that the problem lies with language and communication.
“Even though I am from China, it is hard to interpret hidden messages,” one unnamed respondent said.
Another reason is the lack of professionalism in investor relations. “IR managers are not very well-trained and some of them lack basic understanding or knowledge of corporate governance or even financial information,” another respondent said.
There were also complaints about how mainland companies treat corporate governance as a mere compliance exercise. Some refuse to give “detailed answers beyond the party line”, the report said.
On the flipside, a few respondents expressed empathy for the position of onshore companies.
For example, one respondent said that global investors appear to under-appreciate the differences in culture, political context and the path of economic development between China and the rest of the world.
“Any attempt at influencing changes without reasonable understanding of these differences is likely to be ineffective and may at times lead to unintended consequences,” the respondent said.
Another respondent said that both state-owned and privately-owned companies have to deal with stringent and ever-changing regulations and government policies.
The missing stewardship code
The difficulty of engaging with onshore companies may also be attributed to the country’s lack of an investor stewardship code, according to the report.
Of the 12 major Asia-Pacific markets, China is one that has not issued a stewardship code, which promotes corporate governance and encourages greater dialogue between listed companies and their shareholders.
“Without an explicit policy driving investor stewardship, it is unlikely that the average listed company will give proper weight to a dialogue with shareholders,” the report said.
A number of listed companies in China do not see the importance of having good corporate governance, according to the report, which also surveyed 182 China-listed companies.
For example, only 27% of listed companies surveyed believe there is a close correlation between good corporate governance and company performance.
How China’s listed companies view the relationship between corporate governance and company performance
Source: Asian Corporate Governance Association
In addition, onshore companies have a negative view on whether better governance helps a company to list. Nearly 30% of them said corporate governance of unlisted companies has a significant impact on their ability to list on the stock market.
Do the governance standards of companies in China have a significant impact on their ability to list?
Source: Asian Corporate Governance Association
The report said that the results may help explain why listed private companies in China are generally not seen as being a better investment proposition than SOEs. Only 23% of investors surveyed said they preferred investing in private companies over SOEs. Only 10% of investors believe that private companies are better than SOEs.
“Generally speaking, it is relatively easier to engage with bigger listed companies,” one investor said. “SOEs and larger companies tend to be more responsive. SOEs have more incentive to do so following government guidelines and trends.”
Is MSCI wrong?
The study also highlighted that almost half (48%) of foreign investors believe MSCI was wrong to include A-shares in its emerging markets index. Only 27% of the respondents believe that MSCI did the right move, while 24% held a neutral position.
The study did not suggest reasons why. However, based on the results above, one reason could be that global investors believe China’s listed companies lack satisfactory corporate governance.
A majority of the respondents said they have less than 1% of total assets invested in China A-shares. However, a majority also said they allocate up to 10% of AUM to overseas-listed Chinese companies.
Investment in China A-shares and overseas listings as percentage of their AUM 
