【正文】 garded as the core of the ongoing StateOwned Enterprises (SOEs) reform, and the newly introduced independent director system is viewed as a revolutionary change to the Chinese corporate governance development. This paper analyses the characteristics of independent directors in the Chinese context, proposes five internal factors that would affect independent directors’ performance, namely independence, remuneration, qualification, assurance and autonomy. It is suggested that these factors are essential for independent director system to work effectively, and hence will lead to better board performance. 1 Introduction China launched a major economic reform and liberalisation program in 1978, which transformed the planned economy to a market economy. Since then, the reform of stateowned enterprises (SOEs) has been considered the key to the success of China39。s economic growth. In 1992, the Chinese government reformed its SOEs through corporatisation, and the concept of “modern enterprises” was introduced accordingly. During this process, the separation of state ownership and control was adopted, and pany managers were granted fourteen control rights in July 1992. However, with increased managerial autonomy and unclearly defined property rights, the agency problem of Chinese managers was more serious than that in Western countries. Insider control problems occurred during the SOE reform. Examples of these problems include collusion between managers and workers。 tax evasion and corruption among SOEs’ managers, and ultimately led to poor firm performance. In fact, the existence of insider control problem can be explained by the fundamental principle of agency theory, which is the conflict of interests between the principal (owner) and the agent (manager). Hence, an effective control mechanism needs to be in place that not only maximises shareholders’ interests, but also reduces the cost of monitoring. By addressing insider control problems and poor SOEs performance, many Chinese researchers urge the need for an efficient corporate governance system. Moreover, after China’s entrance into the World Trade Organization (WTO) in December 2020, Chinese panies became exposed to the opportunities and challenges of today’s international market. In order to remain petitive and attract more financial and human capital, Chinese authorities see the urgent need for sound corporate governance. However, empirical studies from the West show that good corporate governance has no direct impact on financial performance. But, sound governance provides improvement when the pany is underperforming due to poor management, or leads to a better performing board. From the study of bankrupt firms and hostile takeover, results suggest that good corporate governance is positively related to the successful reorganization of a financially distressed firm, or reduce the probability of a firm paying greenmail. 2 Theoretical background of the development of independent director System In most transition economies, insider control problems exist when the government handover its control rights to the management. Due to the absence of external market control mech