Corporate standards improving

China: The fact that there haven't been as many shareholder suits in China as in other countries in the region can be attributed to problems in the civil compensation system and court rulings. In China, the burden of proof lies with the plaintiff. Minority shareholders - who are often involved in these types of suits - usually don't have the resources to collect substantial evidence.

In 1998 and 1999, a group of investors in Shanghai sued Chengdu Hongguang Industrial Shareholding Co. due to losses after a decline in Hongguang Industrial's stock prices. The shareholders accused the company of not disclosing problems with its production line in their prospectus. The compensation claim was rejected by the court on the ground that they had not been able to establish the losses were caused by false statements in the prospectus.

In mediation, however, these 11 investors were awarded CNY220,000 (USD28,160), making this the first civil indemnification in a security case. Since January 2002, Chinese courts have dealt with approximately 1,000 civil compensation complaints involving failure to disclose relevant information, but only a small percentage have been satisfactorily settled.

Source: Business Times, 2 Novernber 2006
Asian Casualty Report 10th Edition June 2008 – Gen Re