Civil Liability for Securities Misrepresentation in China: Recent Reforms and Comparative Assessments

In order to effectively deal with securities misrepresentation in China, the 2019 Securities Law and the 2022 Judicial Interpretation have carried out major reforms. They overhauled the civil liability system for misrepresentation, including both procedural and substantive issues. This article combs through the historical development and current legal framework of China’s civil liability system for misrepresentation and analyses the key elements of the civil liability rules and their reforms. It summarizes three main aspects of the recent reforms: enforcing the concept of “holding the main culprit accountable” by strengthening the responsibility of controlling shareholders and actual controllers; the improvement of liability exemption mechanism; the enrichment of litigation mechanism. This article explains the underlying reasons for these reforms, and evaluates the gains and losses of the reforms from the perspective of comparative law between China and the United States (U.S.). China’s reformed civil liability system for misrepresentation is more stringent than the U.S. law, and controlling shareholders and the management have a higher risk of undertaking civil liability. “Holding the main culprit accountable” avoids the issue of “circularity” in U.S.-style class actions. Although the improvement of liability exemption mechanism can reduce the risk of frivolous lawsuits, there are still a lot of legal loopholes. The abolition of the procedural prerequisite of civil litigation for misrepresentation can guarantee investors’ right to sue in a timelier manner, but both the court’s ability to handle cases and investors’ ability to provide evidence are insufficient. Although the introduction of “special representative litigation” has helped avoiding the risk of frivolous lawsuits in U.S.-style class litigations, this hybrid class action with Chinese characteristics has shown an insufficient degree of marketization.