Strengthening Judicial Protection of Minority Shareholders through the China Securities Investor Services Center: The Chinese Approach

By amending the Securities Law in 2019, China adopted a unique approach to strengthening minority shareholders' judicial protection and improving the corporate governance of Chinese listed companies. The amendment introduced two mechanisms to address misrepresentation: lawyer-led opt-in ordinary representative litigation and opt-out class action led by the China Securities Investor Services Center (ISC). The ISC also acts as a general guardian of minority shareholders in litigation. This raises questions of the effectiveness of the ISC approach. On the one hand, the ISC's semi-governmental status aligns with the Chinese context and mitigates resistance to change. On the other, its semi-governmental nature may introduce bias in resolving conflicts of interest between the state controller and private shareholders. Moreover, the ISC's monopoly on class action may lead to inadequate protection. Therefore, the ISC approach should be viewed as a transitional measure to address current deficiencies in private enforcement, while incorporating more market-based elements in the future to ensure robust shareholder protection.