Law of Finance Problem 5: China and Australia Corporate Law Comparison

This report offers a detailed comparison of corporate and finance law between China and Australia. It begins with an introduction to corporate law, its definition, and the corporate governance codes in both countries. The report then compares the two legal systems across various aspects, including shareholder rights, the formation of board committees, the role of supervisory boards (present in China but not Australia), independent directors, risk management, and the disclosure of related party transactions. The report highlights the differences between the two countries, such as China's unique corporate structure with a controlling shareholder and the differing corporate governance models. Subsequently, the report transitions into finance law, defining it as the framework governing financial markets and transactions. It compares the finance laws of China and Australia, noting similarities in the move towards a twin peaks structure in China, drawing insights from Australia's experience. The report explores the twin peaks structure in detail, including regulatory transparency, effective regulatory direction, and coordination. It also discusses the differences between the two countries in licensing provisions, and the Australian Financial Services License (AFSL). The report concludes by providing a comprehensive overview of the legal and regulatory landscapes of finance and corporate law in China and Australia.

Running Head: LAW OF FINANCE 1
18
Law of Finance
Problem 5: Comparison between Finance & Corporate law of China and
Australia
And
Legal Reforms in China and Australia

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Introduction of Corporate Law
Corporate law deals with the creation of the company and it is linked to the commercial
law. Corporate law is the body of law which directs the rights, powers, relations and conduct of
individual, companies, business and profession. Corporate governance code is framed in each
nation according to social, legal and fiscal basis. The Corporate governance code reproduces
corporate structure of each company. Each country has corporate structure having own features.
The Corporation law of Australia has taken from the UK company law (Lyon & Plessis,
2018). In Australia, legal structure contains of The Corporation Act, 2001. The Australian
Securities and Investments Commission (ASIC) is the supervisory body which controls the statue
of Australia. And The Corporate law of China protects the legal rights and interest of the entity,
individual, shareholders and creditors (Jensen, 2018). In this essay how Australian corporate law
and China’s corporate law are compared to each other is discussed and critically examined
(Borochin & Cu, 2018).
Comparison between Australian corporate law and corporate law in the People’s Republic of
China:
The Australian Stock Exchange introduced Australian principles for best governance and
practices recommendations in 2003. And in China, The China Securities Regulatory
Commission’s corporate governance code is for listed company in China. There are some
similarities between corporate code of Australia and corporate code of China in respect of rights
of shareholders, powers of shareholders, duties of shareholders, formation of the board
committee and name of the board committee, independent directors and risk management.

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Chinese company is not required only BOD (board of directors) but supervisory board is also
required. The Supervisory board supervises the functions of the management. But there is no
requirement of supervisory board in Australia. In Australian companies, board of directors are
itself responsible for their functions and conducts (Ciambrone, 2018).
Following are the similarities between Australian corporate law and in the people’s
republic of China-
Particulars China Australia
Powers and
rights of
Shareholders
In Chinese companies, the Shareholders
have some powers and legal rights
which are specified by law, rules and
regulations and AOA (article of
association). The Shareholders should
entertain these rights. General rights of
shareholders are to vote in meeting of
shareholder, to get share of liquidation
proceeds and to review memorandum of
company, article of association, minutes
of shareholders, financial accounting
report, consolidated financial
statements, the resolution of the
meeting of supervisory board and board
resolutions.
In Australian companies, the
Shareholders also have some rights
to entertain. It is a duty of company
to respect shareholder’s right and
give all possible facilities to exercise
rights in effective manner.
Shareholders make a decision in
respect of election of shareholders
and director’s remuneration. The
Shareholders can also take corporate
actions. This includes further issue
of shares, buy back of shares, merger
and de-merger with another
company.
Formation of
board
committees
Company’s board of directors are
authorized to establish board
committees. They may create board
committees as per the requirements of
companies. The bylaws define the
functions of board committees. The
main functions of the
Board committees are to plan the
function of board. It also corrects
responsibilities of members as per the
guidelines.
The formation of board committee is
suggested to the several extent of the
principle as it fits within the legal
documents.
Name of Following committees may recommend Following committees may

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board
committees
recommended
by board of
directors
(BOD)
by the board of directors -
- An audit committee
- A nomination committee
- A corporate strategy committee
- A remuneration
- Appraisal committee
- Special committee which are required
to be form as per the shareholders’
resolution pass in shareholder’s
meetings.
recommend by the board of
directors-
- An audit committee
- A risk management committee
- A remuneration committee
- A nomination committee
Supervisory
board
As per mention in China code, there is a
Supervisory board in all companies.
Supervisory board is in an addition of
management board. In China, a limited
liability company requires supervisory
board. It is necessary that it should have
not less than three persons. But a small
scale company may have one or two
person. The Supervisory board should
include the representatives of
shareholders and representative of
employees at an appropriate ratio as
defined in article of association. Further
the term of supervisory board is 3 years
but after the expiry of term of office,
the position may hold again at re-
election. The supervisors may attend
the meeting of board directors but
cannot vote in meetings.
There is no such provision of
establishment of Supervisory board
in Australia.
Duty of
supervisory
board
The Supervisory board is the grouping
of individuals. The individuals are
appointed by the stakeholders of the
company to create interest through
authority of company. It is a duty of
Supervisory board to supervise the
functions of management board,
executive directors and CEO.
As there is no such provision of the
Supervisory board so no duty arises.
Stakeholder’s
interest
Some provisions are defined in chapter
6 of the China code for the protection of
the interest of stakeholders.
In the Australia, a stakeholder’s
interest is included in the ethical and
responsible decision making.

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Introduction
of
independent
director
It is mentioned in the China code that as
per the applicable rules and regulations,
a listed company should introduce
independent directors to the board of
director in the company. Here
independent director is a director who is
not a substantial shareholder having 5
per cent or more than per cent or who
has not appointed at executive level in
the previous three years or who is not
appointed as professional advisor or the
professional consultant in the respective
company from the previous three years.
As per the Australia principle
recommendation, there is a provision
mentioned about the independent
director. According to it, a majority
of the board should be independent
director. The provisions related to
the independent director are main
part of corporate governance.
Risk
Management
As per the China code, There is no full
coverage of risk management (Aven &
Zio, 2018).
Principle 7 of recognize and manage
risk covers full analysis of risk
management. Risk management is
practice of find possible risk in
advance and evaluates it. It is a sub
area of business and management
which recognize and stop all
probable destructive results in the
organization (Elder & Teasdale,
2018).
Disclosure of
relative party
transaction
and
shareholder’s
interest
In the unique corporate structure of
China, a listed company has a
controlling shareholder. The disclosure
includes the full details of the both
parties, financial asset, financial
transaction, equity, financial
investments and agreement related to
allocation of cost of transaction. The
disclosure should have all the details
regarding address of residence and
registered place of business,
opportunities, latest financial status of
reporting company, segment reports,
consolidated financial report, income
tax obligations and non-related party
transactions.
The Corporate governance code of
Australia includes disclosure of
related party transaction and the
shareholders. The related party
transaction includes issued shares
and securities given to public
company. It also includes
arrangement with a company which
is possessed by family of director.

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Differences between corporate law of Australia and corporate law of China:
While corporate law of Australia and corporate law of China are compared, it is found
that there are some major differences in Australian corporate governance code and the corporate
code of China. These differences are due to circumstances of countries. Different corporate
governance code shows that how nations with different political, economic and social
administration have recognized the code so as to particular development phases can be sued. It
also reflects how corporate governance code should be adopted or implemented for good
corporate governance behavior. Australia has isolated share ownership structure. On the other
hand China has its own unique corporate structure. In China, most listed company has a
controlling shareholder (kraakman & Hansmanm, 2017).
Besides the corporate structure, Australia and China have different corporate governance
models. The Corporate governance model have two main parts insider based model and outsider
based model. The outsider based model is embodied by US and UK. The insider based model is
embodied by Germany and Japan. The differences between corporate code of Australia and
corporate code of China provide base for comparison of corporate governance code (Lanis,
Richardson & Taylor, 2017).

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Introduction of Finance Law
Finance law is a framework of rules, regulations, standards and practices by which
financial markets are regulated and financial transactions are made (Leng, 2017). The main goal
of formation of financial law is financial stability in the market. All countries have their own
government standards and own interest which leads threatened to the globalization, financial
growth and technical development (Stumbles, 2017). So it is necessary to develop and maintain
financial stability in the environment of nations (Eastel, 2017).
Each country has its own and different structure and approach to the financial system.
The institutional approach emphasizes on the formation of the regulatory institution. Bank, an
insurer and security firms are the example (Clarke, 2018). Antitrust, bankruptcy and security law
give protection to the financial interest of small scale business and individual investor. It makes a
separate specialist regulator for the institution (Ntim, 2018).
Comparison between finance law of Australia and Finance law of China:
There are some similarities between finance law of China and finance law of Australia.
The financial system of China is more difficult and integrated in comparison of Australia. China
faces many challenges in respect of the current financial regulatory system (Reid, 2018). It
considers the insight that the experience of Australia. China has moved towards a twin peaks
structure, mostly in context of the different reform proposals which are required to be advocated
(Sherraden, Birkenmair & Collins, 2018).

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Thus the twin peaks structure of China has both advantages and disadvantages. Twin
peaks structure explores insights that occurred in Australia (Singer, 2018). At the time of the
evaluation of experience of Australia and other twin peaks structure, the experience of Australia
is considered by twin peaks structure (Stephen, 2018). The twin peaks structure evaluates the
correct version of twin peaks structure of China. The twin peaks structure considers two major
characteristics which are following-
• Transparency of regulatory objects.
• Effective regulatory direction and coordination.
On the basis of experience of Australia and other nations which have adopted the twin peaks
structure, three questions are required to be asked for the application of the twin peaks structure
and to find out the correct version of twin peaks structure. These three questions are following-
• Where should prudential regulatory be located?
• How can duties, powers and goals of the regulators be expressed?
• What is the way to achieve and maintain coordination effectively?
Despite of the similarities, there are some differences between finance law of China and
finance law of Australia. The licensing provisions in The Corporations Act, 2001 are articulated
for extraterritorial effects so as to able to regulate financial services outside the Australia which
are planned to or likely to have the effect of including persons in Australia to use those services.
The Corporation Act of China provides for identical and uniform approach of financial
regulators. There is constant licensing and disclosure rule in Australia. In Australia, it is

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necessary to have Australian financial service license (AFSL). The Australian Securities and
Investment Commission (ASIC) issues the Australian financial service license to the individual
and corporate entity otherwise they may take the exemption to obtain license. Following are the
regulated financial services which required an Australian financial service license-
• Trading in financial goods.
• The provision of advice.
• Operate a registered managed investment scheme.
• Prepare market for trading of financial products.
• Make available depository and custodial service for the financial products.
On the other hand, China may require a number of license, permits and certifications for
functioning legally in the marketplace. It is a challenge for China for business operating license
approvals. Qualified Foreign Institutional Investor (QFII) and Qualified Domestic Institutional
Investors (QFII) are the two main licenses for foreign financial firms which want to enter into
China’s industry. The Qualified Foreign Institutional Investor is essential for foreign financial
firms which want to make investments in RMB denominated stocks and fixed revenue products.
The China Banking Regulatory Commission (CBRC), the Chinese Insurance Regulatory
Commission (CIRC) and the CSRC defined the possibility of investment for QDII. In 2011,
Renminbi Qualified Institutional Investor (RQFII) was also introduced. But QFII is more
restrictive in the comparison of RQFII.
In Australia, it is mandatory to obtain separate license for operating financial market and
settlement and clearing process in Australia. Australian Securities Exchange (ASX) has power

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to issue separate license. On the other hand in China, the China Banking Regulatory Commission
(CBRC) have powers of issue, changing, revoke and withdraw the financial license. There is
strict provision that no other person (individual or entity) can exercise the powers of China
Banking Regulatory Commission.
In respect of renewal of obtained license, the requirement of renewal of license in China
is more in respect of Australia. It creates challenges for the China because it leads uncertainty. It
makes many consequences such as delay in process and complicated process.
In Australia, most foreign exchange transactions are not restricted. They are free from
regulations. RBA passed on its authority to money market dealers and foreign exchange dealers.
On the other hand, China is more restrict about foreign exchange transactions. It is strict rule that
Companies, banks and financial institutions or individual cannot transfer money within locality
or outside the jurisdiction except in some cases. The People’s Bank of China (PBOC) and State
Administration of Foreign Exchange (SAFE) control foreign exchange within or outside of
China. The State Administration of Foreign Exchange and the People’s Bank of China have
powers to provide exchange rates by using a managed flow system (Pearson, 2018).
When foreign investment is made in Australian banking sector, it is required to review by
Foreign Investment Review Board. It is essential for foreign investment to comply with The
Banking Act and The Financial Sector (shareholding) Act, 1998. While making foreign
investment, banking policy should also be considered. In China, the regulators of the People’s
Republic of China (PRC) have authority to regulate the foreign investment.
In past days, China made only focus on the traditional industries such as plant and
machinery, textile and plastic. But now days it makes focus high-tech industries such as

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automobiles, electronics products, medicines and biological science. These industries become
main and beneficial industries for foreign investment but Australia makes focus on medical and
material science and advanced equipment, digital technologies. The following are the five areas
of growth in Australia-
• Main organizations.
• Tourism organization
• Food sector.
• Energy and resources.
• Innovative technologies and advanced manufacturing and services.
Anti-money laundering is a subject of the regulatory concern. Australia is able to protect
investors from money laundering by the anti-money laundering and The Counter Terrorism
Financing Act, 2008. On the other hand, China has made a law in 2007 for money laundering.
China’s anti money laundering law controls the money laundering activities. There is no specific
act in China for controlling money laundering activities. But by the 2020, China will be able to
control and stop money laundering. It would be possible by improving rules and regulations and
by making law in effective manner.
Australia is going to have better financial service relationship with China. There are
many challenges for Australia to be face such as Australia has to make its own resourceful and
innovative histories of financial services. It has to follow its own financial system and
framework.

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Law Reforms in China and Australia:
Law reforms in Australia -
The law of Australia contains number of levels of organized and unorganized forms of
law (Whincop, Keyes & Posner, 2018). The Australian law developed from Britain law which
had taken in Australia as the part of Britain law in 1770. From 1855 to 1870, local system of
government has been established to the every of British colony in the Australia. Later, central
government was created in 19th century. The Australian constitution comes into effect in January
1, 1901. It can be said starting of independent Australian legal system (Wojkik, 2018). And The
Commonwealth of Australia Constitution Act, 1900 (United Kingdom) was formed.
Law reforms in China –
Law of China is the oldest law among the all. It contains various traditions in the 20th and
the 21st century. The basic China law is created on Germanic style civil law, the socialist law and
the other traditional approaches of China. In 1949, People’s Republic of China has been
recognized (Yabuki, 2018).
At present, Law in the People’s Republic of China is undertaking regular reform. There
are various elements which focus on the necessity to make strong the rule of law in China (Yin,
Yu, Jiang, 2018). They also focus on the foreign trade and the globalization. Law in republic of
China is called civil law system. It is arranged into the six codes. These six codes are following –
• The constitution.