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Despite the opening of the market and partial privatization of state‐owned companies in China, the state still represents the controlling shareholder in larger companies. By analyzing the weaknesses of Chinese corporate governance we illustrate the framework for harmful corruption. China is characterized by a weak legal system and strong influences of traditions such as guanxi. In this article we analyze the influence of guanxi on the Chinese corporate governance system. We find that guanxi is in general a double‐edged sword, but business‐to‐government guanxi in particular can harm the weak Chinese corporate governance system and hamper its further economic development and growth.

PurposeThis paper seeks to illustrate the development of corporate governance issues in the transition economies of Central and Eastern Europe (CEE) and to analyze if codes based on directives or standards are better for these economies.Design/methodology/approachA chapter about corporate governance codes and the respective (dis)advantages of directives and standards starts the paper. Then common European and specific transition economies' corporate governance problems followed by a discussion of directives versus standards for CEE countries are described.FindingsThe paper finds that historical development of the transition economies in CEE leads to specific corporate governance problems such as high court delays, corruption and immature institutional investors. The introduction of corporate governance codes for these economies seems useful but should not rely on broad standards but on legally enforced binding rules accounting for the discussion of directives versus standards.Research limitations/implicationsResearch on the weaknesses of legal systems in transition economies is mainly verbally argued and needs more empirical backing. The discussion of directives versus standards is limited as we live in a world of flux – standards are becoming directives over time.Practical implicationsThe paper argues against the blindfold implementation of corporate governance codes of other countries and argues for country specific solutions keeping in minds the different effects of directives and standards.Originality/valueThe paper opposes the mainstream thinking that corporate governance codes are the ultimate ratio for transition economies in countries of CEE.