A Promising Path or Dead End? A Director’s Duty of Care in China

Abstract

After over two decades of development, Chinese statutory directorial duties have evolved into two segments: the duty of care and the duty of loyalty. However, the duty of care is still difficult to apply. While an abstract and vague drafting style is a common characteristic of Chinese legislation, a survey of existing Chinese laws and administrative rules should assist in clarifying the duty of care requirements expected of directors. Considering the increasing significance of judicial precedents and the exemplary function of administrative sanctions, analysing recent duty of care cases is conducive to supplementing further information and deciphering myths surrounding the application of the duty of care mechanism in China. However, this analysis demonstrates that there are inconsistencies in the standards of care applied by courts and by the China Securities Regulatory Commission. The article finds that a clearer statutory standard of care should be introduced into the People’s Republic of China Company Law.