The Fledgling Securities Fraud Litigation in China

Abstract:     
The amendments to the Securities Law of China solved many issues that had not been addressed in the old version. The Supreme People’s Court rules on securities fraud litigation further added life and meaning to enforcement against securities misconduct. However, problems remain as to the lack of private lawsuit remedy for investors who suffer losses arising from insider trading and market manipulation, the controversial requirement of a prior administrative or criminal ruling and difficulties in pursuing a class action against fraudulent disclosure. In contrast, the US securities fraud litigation is very dynamic yet rife with injustice and misallocation of incentives and liabilities. It has been showed that these troubles in the US system, rooted in the openness of issuers to suits, is probably the exact scenario sought to be avoided in China where the issuers of securities are still largely controlled by the state and the government is concerned about the social chaos that might accompany a wave of collective private lawsuits. After reviewing the experiments in Germany and Taiwan, this essay proposes to further coordinate the efforts of public and private securities enforcement and suggests that the “reform and opening up” policy should be further strengthened to encourage greater private participation in domestic markets.

working papers series