China's investors have had plenty to be angry about in the past year. After roaring to vertiginous heights, their stock holdings plummeted nearly as fast in a rout last summer and, today, remain barely above their lows from last August.
Now, a long-time Chinese investor with a history of fighting the system is trying to get even. Xu Caiyuan is suing the China Securities Regulatory Commission and its former head, Xiao Gang. He accuses them of "dereliction of duty, irresponsibility and misconduct, which are some of the reasons why the stock market crashed."
In a country where top leadership is often untouchable, taking legal action against a senior figure is a bold move. But China's securities authorities, he argues, convinced investors like him that markets would go nowhere but up – and now that they're falling, the authorities should be held responsible.
With the Communist Party in control of Chinese courts, his suit will not likely succeed. It nonetheless offers a window into the scale of problems star-ing down the country's leadership with an economy now grinding to its slowest growth in a quarter-century, amid high levels of debt and overcapacity.
Reformists in China want greater market discipline in stock markets and state-owned enterprises alike to fix some of those imbalances. But change has not come easily, in part because so many Chinese people see the state as their guarantor. It's a position the Communist Party has largely taken for itself – and from which it cannot now easily pull back.
The quandary puts into question the party's ability to maintain the compact that has underpinned modern China: unquestioned political obedience in exchange for constant improvements in personal wealth and well-being.
"This is ultimately the problem, and it touches bigger issues of social stability for China," said Fraser Howie, an author and expert in Chinese public markets. Now that prospects are dimming, "China is a bit of a tinderbox. There are a lot of people who are clearly very angry about their losses."
Mr. Xu is not asking for his money back, although he wants the courts to confirm that China's regulator, through dereliction of duty, infringed on the property rights of millions of investors. A finding in his favour could open the door for others to seek compensation for their losses.
"If the plaintiff can somehow use a victory here to get reimbursement for trading losses, other disgruntled investors will be flooding into courts as well," said Donald Clarke, a specialist in Chinese law at George Washington University. He could think of no precedent for this suit, although some in China have sued environmental protection authorities for failing to do their jobs. In Western societies, legal action against securities regulators is also rare.
Tens of thousands of people support Mr. Xu, said Liu Lufeng, a lawyer who has represented the investor – and stockholders tend to be better educated, capable of defending themselves and united in their anger. "The reasons behind their loss are all basically the same, and related to the government's misleading actions and policy shortcomings," he said.
Mr. Xu bought his first stock in 1998 and has a long history of minting money from markets sometimes compared to a casino. He manages two funds that have, together, grown to $500-million. He's also become a thorn in the side of companies whose malfeasance he has challenged, and a hero to smaller investors for his efforts.
His biggest win forced the State-owned Assets Supervision and Administration Commission to pay an additional 7.1 billion yuan ($1.44-billion) to investors, and made Mr. Xu a pioneer in shareholder fights against Chinese state-owned giants.
His lawsuit against the China Securities Regulatory Commission (CSRC) has roots in an Aug. 14 announcement, when the commission promised that the "China Securities Finance Corp. (CSFC) will not leave the market in the next few years," and would continue to act to stabilize prices.
CSFC is a government agency that provides liquidity support to Chinese brokers and markets – which at the time had just come off a panicked rout that had demolished 40 per cent of their value. To stop the bleeding, authorities ordered CSFC to buy stocks. It was part of a larger intervention broadly criticized as undue meddling, but was recently defended by Premier Li Keqiang as necessary to bring stability.
On the strength of the pledge that CSFC would stay in the market, "we dared to start buying again," Mr. Xu said. Only two days later, the rout resumed. The Shenzhen Composite index today remains nearly 20 per cent below its level on Aug. 14.
Mr. Xu grew angry when he then started reading corporate annual reports. "They show that CSFC completely or partially pulled out," he said. "It's proof that CSRC's public announcement was misleading and cheated investors. And it's connected to my own losses as well."
Mr. Xu's years of pressing for change have not been without risk. Authorities have called him in "for tea," local shorthand for an unofficial talk, usually meant as a warning. Online posts about his legal challenges, including legal filings, have been censored. "It feels like a pair of invisible hands is trying to grab my throat to silence my voice," he said.
Courts haven't been eager to take on his latest case. In China, before a lawsuit can be heard, it must pass a case acceptance, or "docketing" procedure meant to screen out only complaints with merit. But "courts often use this process to get rid of troublesome cases," Prof. Clarke said.
The Beijing First Intermediate Court rejected Mr. Xu's case. He has now appealed to the Beijing Higher Court, which invited him to appeal directly to a judge. Merely having his case heard would represent a victory.
"It would be very interesting and significant if a court were to say that, 'Yes, we think this at least possibly states a claim, so we are going to require the CSRC to come in and defend themselves,'" Prof. Clarke said.
Mr. Xu isn't alone in challenging securities regulators. Zhang Yishan, another long-time investor with nearly 20 years of experience, has also filed suit against the Jiangsu Securities Regulatory Bureau. He alleges mistreatment both by his stock broker and by market authorities.
China's angry shareholders have not always come in for much sympathy, particularly since many of them are complaining about mistreatment while they're sitting on profits. Even the hard-hit Shenzhen index remains higher than it was on March 20, 2015 – barely a year ago.
Still, they say, what has happened in the past year has exposed major problems with government intervention. And if Beijing won't fix it voluntarily, they want to force its hand.
"What a professional stock investor wants is to fight against all of the injustice and bad behaviour dominating the market, so that we can clean up the Chinese stock and securities market for ourselves," Mr. Zhang said.
"I told Mr. Xu that I was worried he would lose, because if he wins, ordinary people will rise up. It's impossible that he be victorious," Mr. Zhang said. "But in people's hearts, he has already won."