Investor Protection in China: A Socio-Legal Analysis

Abstract

Marc Galanter proposed a typology of parties in his seminal work “Why the ‘Haves’ Come out Ahead”. This idea originated from his observation that “some of the actors in the society have many occasions to utilize the courts (in the broad sense) to make (or defend) claims; others do so only rarely”. He classified actors who have occasional recourse to the courts as One-Shotters (or OSs) and actors who are engaged in many similar litigations over time as Repeat-Players (RPs). The focus of this thesis is on a specific group of OSs—individual investors as “weak parties” in the Chinese financial market. Individual investors share all the traits described by Galanter. Besides that, they face similar legal barriers under the Chinese context. A noticeable issue is that they cannot sue as a “class” to the Chinese courts. The author traced prominent securities fraud lawsuits in recent years and compared issues found in securities civil compensation lawsuits with recent environmental protection litigations in Chapter Two. The author found that experts and financial support from a third non-profit party, and judicial specialization of the Chinese courts are of great importance to the weak parties’ winning advantages in litigation. Along this line of thought, the author conducted empirical research on the Taiwan Securities and Investors Protection Center and the Finance Division in Pudong New Area District People’s Court to find if individual investors could step ahead of courts with the help of these changes. The author found that even if these changes are in place, the weak parties still could not benefit from these improvements. In the process of litigations and judicial specialization, listed companies, as RPs in litigation, still could play for the rule change by using their extra-judicial power and external resources. The author then reviewed past securities false statement lawsuits to find out if individual investors can benefit from securities administrative sanctions executed by the China Securities Regulatory Commission. The author found that although the securities administrative sanctions, as a prerequisite procedure, may limit individual investors’ right to sue, relying on them, the courts may show deference to the facts and decision concluded by the China Securities Regulatory Commission. Therefore, individual investors may benefit from the prerequisite procedure in litigation. Under this circumstance, listed companies may choose to settle disputes outside the courts because of the possibility of huge expenditure in litigation. Chapter Six examines the issue if the individual investors can come out ahead in the ADR mechanisms. The author found that individual investors may not benefit from judicial mediation and industrial mediation in China. Their interest could be compromised in the mediation process. In the final chapter, the author discussed the difficulties of adjudicating Economic and Social Rights. As to the further research, the author alerts that an eye should be kept on the possible compromise of weak parties’ interests in the Chinese financial market if any “improvement” is introduced to the current regime.

Date of Award	20 Aug 2015
Original language	English
Awarding Institution	City University of Hong Kong
Supervisor	Wenwei GUAN (Supervisor)