CORPORATE CAPITAL FORMATION SYSTEM OF CHINA: THE EVOLUTIONS, DEFICIENCIES AND IMPROVEMENTS

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GE PUSHEN, HANNA BINTI AMBARAS KHAN, SUHAIMI AB RAHMAN

Abstract

The capital formation system of China has made significant progress in the past 30 years. When China first enacted the company law in 1993, it had a strict statutory system. However, in 2005, the system was gradually relaxed upon revision of the law. In 2013, China again amended its company laws, and the system was changed from a capital formation to a full subscription system. The amendment is beneficial but it gives the autonomy of capital contribution to shareholders rather than companies. In the third review of the latest revised draft of the Company Law, the authorized capital system was introduced, which is not only innovative but also has far-reaching implications. The introduction of an authorized capital system will undoubtedly provide more autonomy space for companies, which is conducive to their flexible operation and innovative development. The objective of this paper is to analyze the necessity and feasibility of introducing the authorized capital system and to study the shortcomings of the Third Review Draft's provisions on the authorized capital system and make suggestions for improvement. This article uses the qualitative research method, mainly analyzing the text of the third review draft and literature related to the topic to collect data. It is found that the provisions on the authorized capital system in the third review draft are too simplistic, resulting in inconsistencies between the authorized capital system and the subscription system, a lack of authorization withdrawal mechanisms, a lack of relief mechanisms for improper issuance, and the limitation of the authorized capital system to limited liability companies

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