China to Protect Stock Investors' Interests

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Last updated at: (Beijing Time) Thursday, November 29, 2001

China to Protect Stock Investors' Interests

Chinese legal professionals are urging the nation to set up a civil compensation mechanism to better protect stock investors' interests. Such a mechanism should be designed to help investors who have suffered losses from stock irregularities seek judicial remedy, said Gao Xiqing, vice-chairman of the China Securities Regulatory Commission, the nation's stock market watchdog.

Insiders Call on Perfection of Related Laws

Zhu Shaoping, a division chief with the National People's Congress (NPC) Financial and Economic Committee, said the compensatory clauses in the Company Law and the Securities Law are too general to work.

"A right is meaningless if it cannot be protected in legal proceedings," said Jiang Ping, a civil law professor who advocates judicial support for small-sum stockholders.

Cheng Siwei, vice-chairman of the NPC Standing Committee, China's top legislative body, urged judicial organizations and Gao's committee to work out more specific codes so that the two laws can be carried out.

Cheng's call came after the NPC Standing Committee heard in June a report on the performance of the Securities Law.

That report found rampant insider trading and institutional manipulation of stock prices, which seriously encroach on the rights of small stockholders.

Establishment of Securities Compensation Mechanism Urged

The establishment of a civil compensation mechanism in the securities field will help enhance the confidence of investors and caution listed companies and intermediate agencies such as lawyers and accountants, Gao said.

But in many cases, securities rule breakers face only administrative punishment, including fines that should be paid to the State.

Cases Filed Due to Institutional Price Manipulation

In September and in Beijing and Guangzhou respectively, a total of 363 small shareholders of Yorkpoint Science & Technology, a Shenzhen-listed company caught engaging in institutional price manipulation, filed a class-action suit against the company itself and company price riggers who secured huge gains for themselves but caused losses for ordinary investors.

The shareholders demanded 24.6 million yuan (US$2.98 million) in compensation.

But the case, along with another similar case against Yinchuan Guangxia Corp, was suspended by the Supreme People's Court of China on the grounds that related regulations and conditions for hearing such cases need improving.

A specific judicial explanation from the Supreme People's Court of China on how to handle such cases is expected to come as early as next year, according to Cao Shouye, a judge with the court.

Stock Investors in China

By the end of 1998, investors had opened 39.107 million investment accounts, of which 155,800 were in the name of institutional investors and 38,951,200 in the name of individual investors (Chart 1, Chart 2).

Chart 1:Expansion of Investors (10,000)

��	1992	1993	1994	1995	1996	1997	1998
Shanghai Shenzhen	111.23 105.41	423.51 354.15	574.89 484.09	685.20 557.27	1,207.87 1,099.36	1,713.31 1,620.02	1,998.97 1,911.73
Total	216.65	777.66	1,058.98	1,242.47	2,307.23	3,333.33	3,910.70

��

Chart 2:Structure of Investors (1998) (10,000)

��	Shanghai	Shenzhen	Total
Institution Individual	6.26 1,992.71	9.32 1,902.41	15.58 3,895.12
Total	1,998.97	1,911.73	3,910.70

Source from China Securities Regulatory Commission

Securities Law of the People's Republic of China

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