The 11 plaintiffs, who had bought shares in the Shanghai-listed firm Hongguang, were awarded 224,000 yuan (US$27,000) overall, 90 per cent of the amount they had claimed in compensation.

In late 1998, a Shanghai investor brought a suit against the Chengdu Hongguang Industry Co Ltd, claiming that its share prospectus had misled him when he was investing in the stock.

Before listing, Hongguang said it had posted net profits of 54 million yuan (US$6.5 million) in 1996. But the China Securities Regulatory Commission later discovered the company had lost 103 million yuan (US$12.5 million) that year.

The case has evoked strong responses from investors, securities circles and the legal community because it was the first litigation on the Chinese mainland against unregulated actions in the country's fledgling securities market.

Other investors later sued Hongguang for fraudulence. Courts both in Shanghai and Chengdu initially dismissed the case but, in January this year, the Supreme People's Court lifted a four-month ban on accepting cases involving stock-trading fraud.

Legal experts explained that institutional defects concerning civil compensation on the securities market resulted in courts not accepting such cases.

Beijing lawyer Cai Baochuan said China's current Securities Law provides very abstract stipulations on civil liability.

"As the stipulations are not specific enough, the courts have difficulty applying them," said Cai.

"The biggest headache is that the disclosure of false information did not have the necessary cause-effect relationship regarding the shareholders' losses, due to the fluctuating nature of the securities market. The amount of compensation is another tough issue for courts to decide," Cai said. "Furthermore, judicial personnel are of unsatisfactory quality, and relevant judicial interpretations have yet to be unveiled."

Legal experts say China's courts are under increasing pressure from the public to punish the violators.

(China Daily November 27, 2002)