Submitted by: Submitted by ammar644
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Words: 12773
Pages: 52
Category: Business and Industry
Date Submitted: 05/21/2013 08:12 AM
1
The 2008 China Milk Scandal and the Role of the Government
in Corporate Governance in China
Abstract1
The close association between the Chinese state and the Chinese state-controlled companies
has been identified by a number of commentators. Through a case study on the exposure of the
2008 Chinese tainted milk scandal and the handling of the aftermath of the scandal by the
Chinese central and local governments, this paper establishes substantial evidence of
government intervention in China’s large private corporations.
The paper argues that in the tainted milk scandal, the roles played by the local Hebei
government and the central food safety authority have had a negative impact on
establishing/maintaining adequate internal controls and encouraging socially responsible
behaviour among the dairy companies. Similarly, the equally protective approach adopted by
the central and local governments in handling the aftermath of the scandal may have only
addressed the symptoms but not the root cause of the fundamental failure in the corporate
governance of the dairy companies.
The intervention in business by government at various levels may find its justification in the
common goal of promoting economic growth. Although this is one important policy objective
particularly with the global economic downturn, the paper suggests that this policy has had
some unintended effects upon governance of the Chinese companies.
1
Jenny Fu, LLB (Canberra), BA (Beijing), MLS (Canberra), Lecturer, Faculty of Law, University of Canberra,
PhD-in-Law Candidate, College of Law, the Australia National University . The
author would like to thank Professor Peta Spender of the Australian National University for her valuable
comments on an earlier version of this paper.2
Part 1: Introduction
The role of government in corporate governance seems to have increased with each round of
corporate collapses and scandals.2
Major corporate collapses in...