CHINA Trends and Developments Contributed by: Siyuan Liu, Wei Wang and Huanhuan Yu, Jingtian & Gongcheng
Differential Protection Afforded to Different Investors: Trends and Impact In securities misrepresentation cases, both before and after the revision of the Several Provisions on Trying Cases of Civil Compensation Arising From Misrepre- sentation in the Securities Market (“Misrepresentation Judicial Interpretation”), the courts have applied the fraud-on-the-market doctrine and the presumption of reliance to establish transaction causation. The purpose has been to ease the evidentiary burden for retail investors, who face difficulties in producing evi- dence to prove the basis of their investment decisions, thereby maximising protection for small and medium investors in secondary markets. With the expansion of the interpretation’s scope, however, professional institutional investors – such as those purchasing private placements, bonds, or NEEQ shares – have increasingly initiated such suits. Unlike retail investors, these institutions have more extensive market experience, stronger due diligence capacity, advanced analytical resources, superior bar- gaining power, and enhanced self-protection capabil- ity. They may even be able to negotiate better contrac- tual protections for their investment. Their investment decisions should therefore be protected by ordinary tort disputes and may not satisfy the conditions for applying the presumption of reliance. Judicial practice has confirmed this approach. In the Protruly case, which is one of the Top Ten Commer- cial Cases of 2020 issued by the Supreme People’s Court (SPC), the SPC recognised that such investors should bear a higher duty of care. Similarly, in a mar- ket manipulation case before the Shanghai Financial Court, the court required institutional investors to prove that their investment decisions were impacted by market manipulation. The challenge of investor classification continues to emerge as collective actions evolve. Courts increas- ingly seek to categorise plaintiffs with greater preci- sion in order to balance the interests of all parties in judicial proceedings. A notable example is the Misho Ecology & Landscape Case before the Shenzhen Intermediate People’s Court, where the court held that professional institutional investors, by virtue of their specialised knowledge, experience and deci-
been more broadly applied, as illustrated by the Feilo Acoustics and the Topcare Medical cases before the Shanghai Financial Court; the LeTV case before the Beijing Financial Court; the Huatie Tongda and the Eastone Century cases before the Guangzhou Inter- mediate People’s Court; the Zhongchuang Environ- mental and the Xiamen Anne cases before the Xiamen Intermediate People’s Court; the Huifeng Bio Agricul- ture case, the Lanfeng Bio-Chemical case, the Yechiu Metal Recycling case, and the Chengxing Phosph- Chemicals case before the Nanjing Intermediate Peo- ple’s Court; the Wuyang Bond case before the Hang- zhou Intermediate People’s Court and the Kangdexin case before the Suzhou Intermediate People’s Court, and numerous others nationwide. At the same time, judicial and regulatory authorities have repeatedly emphasised the institutionalisation of special representative actions, leading to a steady increase in application. Such cases include the Kang- mei Pharmaceutical case before Guangzhou Interme- diate People’s Court in 2021, the Essence Information Technology case before the Shanghai Financial Court in 2023, the Misho Ecology & Landscape case before the Shenzhen Intermediate People’s Court in 2024, and the Jin Tong Ling Technology case before the Nanjing Intermediate People’s Court in 2024. Emerging Issues in Collective Redress Arbitration Besides civil litigation, arbitration has been explored as an important mechanism in diversified dispute res- olution. Since arbitration requires an agreed arbitration clause, mass disputes have been historically rare in arbitration practice. However, since 2021, bond-relat- ed securities disputes have been increasingly subject to arbitration, prompting major arbitration institutions to address collective arbitration. The Shenzhen Court of International Arbitration estab- lished the China (Shenzhen) Securities and Futures Centre and issued rules tailored for securities dis- putes. In 2024, the Beijing Arbitration Commission heard numerous misrepresentation cases arising from Brilliance Group bonds and explored procedural inno- vations relating to the co-ordination of multiple cases, efficiency, tribunal composition, and the protection of respondents’ procedural rights, with arbitral awards already rendered in some cases.
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