Analyses of corporate governance problems in China's state sector have mainly focused on administrative interference from state agencies. So far the influence of Communist party institutions has received little attention. Although the influence of ideology has diminished greatly, the Chinese Communist party continues to monitor and control economic actors at every level of the state sector. This article shows that the institutional structure through which the party executes its monitoring and control functions has a corrosive effect on the day-to-day governance of the vast majority of state enterprises. The party's management structure aggravates the inadequate monitoring of managerial performance, weakens managerial incentives, and amplifies insufficient corporate transparency, thereby allowing state asset managers to carve out informal spheres of autonomy. These spheres of autonomy create opportunities for insider control, economic corruption, and the illicit privatization of state assets. Effective and sustainable privatization and corporate governance reforms in China's state sector will thus require the party to substantially diminish its authority over state sector executives.
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Christopher A. McNally (2002) studied this question.