Securities Litigation in China (New Article by Jin Sheng, AIIFL Fellow)

"Private securities litigation in China: Passive people's courts and weak investor protection"

Jin Sheng (PhD 2010, AIIFL Honorary Fellow) 

Bond Law Review

2015, Volume 26, Issue 1, Article 4

Abstract: This article addresses remedies for defrauded public investors in the Chinese legal system and the passive attitude of China’s courts to private securities litigation. Despite the existing laws in China prohibiting securities fraud, the absence of an efficient enforcement regime leaves shareholders vulnerable to a wide range of abuses. Weak legal remedies for victims of securities fraud, especially poor law enforcement and judicial governance, have led to a waste of judicial resources. In particular, China’s courts have adopted a passive attitude to securities disputes (typically prior to 2003, when the courts were absent in dealing with private securities actions), although this situation is changing gradually. This article analyses procedural reforms such as shareholders’ derivative actions, class actions and shifting evidential proof for defendants. Judicial practices in securities fraud, including false statements, market manipulation and insider trading, are also addressed. This article then highlights the importance of establishing an active and independent system of legal enforcement for the protection of investors. In conclusion, it suggests introducing class actions, the inversion of the burden of proof and facilitating private remedies for individual shareholders by enhancing judicial review, judicial independence and judicial governance. Click here to download the article.