China should introduce class-action lawsuits to deter securities frauds and protect minority shareholder interests, a senior securities regulator said yesterday. 'We must fully employ legal and administrative measures to punish behaviour in breach of law and regulation and in violation of minority shareholder interests,' China Securities Regulatory Commission (CSRC) assistant chairman Jesse Wang Jianxi told the 16th World Congress of Accountants in Hong Kong. 'Other than the existing enforcement mechanisms, we should introduce class-action lawsuits. We should enable shareholders to seek compensation through civil lawsuits.' Mr Wang is probably the most senior CSRC official to have thrown his support behind class-action shareholder suits since China's highest court explicitly banned them in January. His statement yesterday is likely to highlight the friction between the securities regulator and China's more conservative courts over how fast the country should go in protecting minority shareholders' interests. Chinese courts have been dragging their feet over shareholder lawsuits against listed companies for fear they could become a target of rising public anger over endemic market frauds and apprehension that they could open the floodgates to many complex cases. The Supreme People's Court in Beijing last year put a four-month moratorium on such cases before announcing in January that it would allow courts to accept shareholder lawsuits against listed firms already disciplined by the CSRC over false information. The court preferred shareholders to file complaints individually or jointly with a fixed number of plaintiffs. To the dismay of the securities regulator and many legal experts, the court said class-action suits would continue to be off-limits. In class-action suits, the judgment applies not only to the plaintiffs but to all shareholders who have not explicitly relinquished their rights. Analysts say such suits have the greatest potential to deter securities crimes and can reduce litigation costs. However, many deem Chinese courts, until recent years packed with retired army officers, ill-equipped to handle such cases. The highest court's deputy chief Li Guoguang has said class-action suits are technically complicated. Class-action suits are politically difficult as 77 per cent of the 1,175 listed firms were state-owned or state-controlled as of April. 'With fewer people participating, there would be greater social stability,' said Guo Feng, a mainland lawyer representing hundreds of shareholders in two high-profile lawsuits recently. With two-thirds of China's market capitalisation non-tradable state or legal-person shares held by the government or government-backed companies, it would also be hard to ascertain who were the real victims of a securities crime, Mr Guo said. The China Business Times earlier this month said thousands of shareholders had filed 893 lawsuits against nine listed firms. So far, only one has concluded with a Shanghai housewife reaching an 800 yuan (about HK$749.76) settlement with the defendants. Mr Wang also said the CSRC was considering a requirement that a listed firm hire an auditor other than its annual-report auditor to provide a second opinion on large connected transactions. About 79 per cent of listed firms had connected transactions with their biggest shareholders. 'Sometimes, controlling shareholders use the listed firms as automatic teller machines,' Mr Wang said.