Washington International Law Journal


Ling Dai


As part of the reform of China’s centrally planned economy, one of the primary purposes in establishing a stock market was to help state-owned enterprises raise sufficient capital from the public. The protection of investors’ interests was not essential in the initial contemplation of securities laws, though the listed companies have a duty of disclosure under the 1998 Securities Law. After the Supreme People’s Court promulgated its judicial interpretation of the false statement doctrine in civil securities cases in 2002, the lower courts started to interpret and apply the elements of the false statement doctrine in securities cases brought by public investors to seek civil compensation against the listed companies that misrepresented or omitted major information. The causation test of the false statement doctrine is the determinative issue in many false statement cases. This Comment explores the confusion in the causation test under the Supreme People’s Court’s judicial interpretation of the false statement doctrine, evaluates the application of the causation test in two civil securities cases, and argues that a trial court should interpret the causation test in favor of public investors in a close case in light of the legislative intent to protect public investors and the practical need to reconstruct investors’ confidence in the stock market in China.

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