Officials call for specialist court to deal with financial disputes

Top industry officials are suggesting a strengthening of the laws surrounding financial disputes as the country's financial reforms deepen and the sector prepares for the launch of the new registration-based listing system later this year.

Gui Minjie, chairman of the Shanghai Stock Exchange, submitted a proposal during the annual session of the National Committee of the Chinese People's Political Consultative Conference suggesting the setting up of a specialized financial court in the city.

The proposal was made as China continues to broaden its financial reforms, especially those aimed at attracting international players into the market.

Internet-based financial products are also being introduced fast, within what is becoming an increasingly aggressive investment market, increasing the legal challenges potentially facing the sector.

Chinese courts settled 2.78 million commercial cases in 2014, 8.5 percent increase year-on-year, according to the Work Report of the Supreme People's Court, issued on Thursday.

Of those, 824,000 were related to the financial services industry and 664,000 involved sales and purchase contracts, the report revealed, as it urged players in financial markets, particularly, to ensure that trading remains fair and legal.

Official data from the authorities in Shanghai show the number of finance-related legal cases surged 33.1 percent in 2013 and 75.4 percent in 2014, which they said had started to put the legal framework under strain.

Meanwhile, 252 billion yuan ($40.26 billion) worth of peer-to-peer lending - largely carried out online - was conducted last year, 181.8 percent more than in 2013.

But with 275 companies involved in P2P lending filing for bankruptcy or running into difficulties due to bad loans or fraud, the sector is being shown to carry as much risk as potential rewards and benefits, and officials insist more laws are urgently needed, especially when it comes to disputes.

Gui said that fraud cases involving the financial market can often be more complicated than standard commercial cases as they can involve a lot more parties, and victims could spread across China.

As China prepares to launch its new registration-based share-listing system - which puts a stronger emphasis on information disclosure rather than pre-IPO vetting - the authorities are building a system that offers stronger judicial protection.

The new system will see the China Securities Regulatory Commission only responsible for examining applicants' qualifications, leaving investors and the markets to make up their own minds about a company's value and the risks of buying shares.

Previously, companies seeking to list on China's stock markets had to undergo a review and approval process, where the CSRC had sole discretion to decide whether a company was fit to list.

With the new set-up, the authorities are promising harsh punishment to anyone filing false information, but as Gui pointed out "it remains a question as to where these case could be heard if they arise.

"Based on the current system, cases would be accepted and handled by local courts of the defendant; however, considering the specialist financial knowledge that will be required, we need reform."

Radical change is happening elsewhere in the Chinese legal system: pilot intellectual property courts and circuit courts, for instance, were set up in 2014, and the country now needs a similar pilot financial court, preferably in Shanghai, to address the expected rise in cases, Gui said.

Shi Jie, a political adviser from Sichuan province, agreed with Gui.

"Hearing financial cases is a specialist job, and needs judges who are familiar with related businesses and policies."

Shi warned, however, that despite the need for specific courts for specific sectors, the authorities should be wary of not creating too many different types of court, as that could eventually lead to an overall weakening of the main legal system.