Private Enforcement of Securities Law in China: A Ten-Year Retrospective and Empirical Assessment

Abstract

This paper undertakes the first comprehensive study of the nature and extent of private securities litigation in China, examining whether private securities litigation has been effectively carried out during the first decade since it was formally permitted by China’s highest court in 2002. Methodologically, it goes beyond the doctrinal analysis as commonly seen in the extant literature on the subject. Instead it empirically investigates both the quantity and quality of securities civil actions in China. There has been a much lower number than expected of securities civil suits in China during the ten-year study period, but the percentage of recovery in China is significantly higher than that in the United States. The policy implications of the empirical findings are discussed with a view to improving the Chinese legal regime for private securities litigation. In particular, it casts doubt on the popular belief that China should adopt the U.S.-style class action. Furthermore, as the local courts are found to be dysfunctional in handling securities civil cases, a reform proposal is made to give investors more freedom in choosing the court for bringing securities civil actions in China.

Keywords: securities law enforcement, private securities litigation, empirical study, China

JEL Classification: K22, G15