The Chinese-style securities class action mechanism for investor protection: context, content, comparison and consequence

Abstract

In December 2019, the modification of the Securities Law of China created a Chinese-style securities class action mechanism, namely the special securities representative action (SSRA) mechanism, which provided investors with a new route to private enforcement by enabling them to launch claims against wrongdoers in a single lawsuit. On 12 November 2021, the court ruled the spotlight-catching first SSRA, i.e. the Kangmei case, opening the chapter of the use of the SSRA mechanism in practice. This article conducts a close examination of the SSRA mechanism, discussing the context of introducing this mechanism and its functioning, comparing it with the US securities class action mechanism as a global counterpart and looking into the effectiveness of the SSRA mechanism for investor protection in practice. This article finds that the SSRA mechanism is carefully designed to solve the problem that most Chinese investors lack the incentive and capacity of litigation engagement, which has been proven effective for investor protection in the Kangmei case.