The Hidden Reality of Shareholder Activism in China: Defying Western Assumptions

Retail investors in China forced a politically powerful state-owned shipping giant to pay dividends after a decade of refusals. Private shareholders successfully sued government-backed companies. State activists lost battles against private firms. Our groundbreaking study of 156 shareholder activist campaigns from 2007-2023 reveals a China that defies Western assumptions about its corporate governance.

The numbers tell a striking story: shareholder activism campaigns increased nine-fold from 2008 to 2023, with over two-thirds occurring in just the last five years. Most remarkably, we found no statistically significant difference in success rates between campaigns against state-owned enterprises (SOEs) and privately-owned enterprises (POEs) – political power doesn’t predict outcomes.

President Xi Jinping is (in)famous in the West for demanding “that businesses conform to the aims of the Communist Party.” The newly appointed boss of the China Securities Regulatory Commission (CSRC) has earned the sobriquet “Broker Butcher” for his alleged zealous crackdown on traders. Western media regularly reports on billionaire tycoons being driven underground after criticizing the government.

But this view is woefully incomplete.

Our new research, based on the first hand-collected dataset of 156 publicly reported shareholder activist campaigns and detailed case studies, finds that China has developed a surprisingly vibrant and rules-based market for shareholder activism shaped by legal mechanisms and market dynamics, not political fiat.

The Data That Defies the Narrative

The meteoric rise is undeniable. In 2023 alone, there were 27 publicly reported campaigns –nine times more than in 2008. This surge coincides with China’s 2018 Code of Corporate Governance amendments and has been reinforced by the 2024 Company Law reforms, that lowered the shareholder proposal threshold from 3% to 1%, expanded inspection rights, and enabled double derivative suits – changes that strengthen shareholder rights and increase transparency in Chinese listed companies.

Equally important is who is participating: retail investors, private institutions, and even state-controlled entities all appear in the ranks of activists. And they are targeting both POEs and SOEs. In our dataset, 78% of activist campaigns against national champions – China’s most politically powerful SOEs – were brought by private activist shareholders, with 57% succeeding.

Most strikingly, our regression analysis reveals that political identity has no statistically significant impact on campaign success. Private investors targeting SOEs, and state actors targeting POEs, had roughly equal odds of success. Even more surprising: over 50% of campaigns by national state-controlled activist investors failed when targeting POEs. The outcomes didn’t follow a political script – they followed legal rules and shareholder dynamics.

When David Beats Goliath in Beijing

The case studies are just as surprising as the data.

One of the most striking involved China COSCO Shipping Holdings, a politically powerful national champion that had refused to pay dividends for over a decade. In 2021, retail investors organized on the Chinese financial platform Snowball and launched a campaign demanding dividend payments. At the centre was an anonymous online activist known as “Legend of the Red Scarf” – perhaps China’s answer to “Roaring Kitty” – who used catchy language and the internet to overcome collective action problems among retail investors to mobilize support.

Within 24 hours, Legend of the Red Scarf had mobilized nearly 500 million proxy votes, successfully meeting China’s 3% Proposal Right threshold. The campaign succeeded: COSCO publicly committed to paying dividends of 50.15% of attributable profits, celebrated as a win for minority shareholders. The episode conjured up images of WallStreetBets meets China – a grassroots investor movement successfully challenging one of China’s most politically powerful SOEs.

In another revealing case, a state-controlled activist shareholder (SAS) targeted a POE that responded with obstructionist tactics – refusing to allow votes on director nominations and cancelling shareholder meetings. The SAS didn’t resort to backroom political influence – it sued. After a drawn-out battle through legal channels, the activist prevailed in court. In China, it appears that even the state acts like a private shareholder bound to follow the legal rules, at least in its capacity as a shareholder of public companies. 

That is not to say politics is entirely irrelevant in every single case. In a single campaign in our dataset, involving FAW Car Co., the company appeared to ignore a 97.3% shareholder vote that rejected a delay in fulfilling a key reorganization promise. The firm’s national champion status may possibly have contributed to this outcome. But this was the singular exception in our detailed review of the 156 activist campaigns in our dataset – all others adhered to the rules-based market for shareholder activism that has become a defining (yet almost entirely overlooked) feature of Chinese corporate governance. 

Why Politics Doesn't Predict Success

Our research complicates the conventional binary between state and private sectors. The data reveals patterns that defy expectations.

Economic incentives matter more than political status: Shareholder activists holding a larger percentage of target company shares have a statistically significant higher chance of succeeding. Targets of successful campaigns had return on assets (ROA) over 50 percentage points lower on average than unsuccessful campaigns (though this difference wasn't statistically significant).

State entities compete against each other: In several cases, state-owned entities were both activists and targets. Some campaigns involved contests between SOEs controlled by different provincial governments. These episodes played out through shareholder meetings, board elections, and courts – not in smoky political backrooms or by public political decrees.

Controlling shareholders don't guarantee failure: Chinese listed firms are overwhelmingly controlled, yet minority shareholders have successfully used cumulative voting, shareholder proposals, related-party transaction rules, and even (rarely) litigation to exert meaningful influence.

What This Means Going Forward

For investors: China’s shareholder market may be more rules-based than you think. Engagement strategies that work in Western markets may have more applicability in China than previously assumed. Factor this into your risk assessments and engagement strategies.

For scholars: It’s time to reconsider fundamental assumptions about political influence in Chinese corporate governance. Theories that assume political dominance in all aspects of Chinese corporate governance need updating. The rise of shareholder activism suggests market mechanisms play a larger role than previously recognized.

For policymakers: Market mechanisms can thrive even within state capitalism environments. Legal infrastructure, not just political systems, shapes corporate governance outcomes in China. Consider how robust minority shareholder protections can create space for market-based governance even in unexpected political contexts.

A Closing Reality Check

What emerges from our study is not the tired trope of corporate governance in China by political fiat. Rather it illuminates the current reality that China has a complex and evolving system in which shareholders are increasingly empowered, legal rules matter, and market-based outcomes appear to be the norm. 

Chinese companies have become world leaders in many important industries. Over the past 15 years, China has had the world’s largest market for initial public offerings and the world’s second largest stock market, which has grown five-fold in the past decade. To think that this success is the result of a system in which the government uses its political influence to dictate corporate governance outcomes gives far too much credit to the Chinese government – and far too little credit to rules-based markets.

As we conclude in the final line of our article:

“There is a reason why the USSR regularly had shortages of toilet paper and why it did not have shareholder activism. China has an abundance of both.”

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Zhou Chun is Associate Professor at Guanghua School of Law, Zhejiang University.

Zhang Wei is Associate Professor at Yong Pung How School of Law, Singapore Management University.

Dan W. Puchniak is the Yong Pung How Professor at Yong Pung How School of Law, Singapore Management University and an ECGI Research Member.

This post is based on our article, “The Overlooked Reality of Shareholder Activism in China: Defying Western Expectations,” forthcoming in the Harvard Business Law Review.

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