The Application Of The Extraterritorial Jurisdiction Clause Of PRC Securities Law

Since 2018,the United States has imposed several rounds of tariffs on China,launching a comprehensive crack down against China’s trade,finance,science and technology,including claiming "long-arm jurisdiction" over the legal financial and trade activities of Chinese enterprises.The Sino-US trade dispute has escalated into a hegemonic scheme of the United States to consolidate its position in the world in the face of a growing China.Under such unprecedented challenge,it is necessary for China to build a counter-system against western hegemonism,including the construction of the extraterritorial application of PRC Laws.On November 5,2019,the Fourth Plenary Session of the 19 th Central Committee of the CCP pledged to "strengthening legislation in important sectors and accelerating the construction of legal systems of extraterritorial application".One month later,the newly revised Securities Law added the extraterritorial jurisdiction clause(Article 2,Paragraph 4),which means that the Securities Law may claim jurisdiction over overseas acts which have an adverse effect on China.Specifically,the CSRC and other authorities may investigate and impose penalty to persons who issue and trade securities outside China,meanwhile,persons in China may file a lawsuit against overseas doers claiming violations to PRC Securities Law.The extraterritorial jurisdiction clause is essential for the protection of domestic securities market and investors against overseas illegal securities activities.Since the establishment of the extraterritorial jurisdiction system of securities law in the United States in the 1960 s,other governments established their own extraterritorial jurisdiction system.With the capital circulating around the globe,the reasonable expansion of the Securities law to overseas securities activities is conducive to providing a more complete protection for the securities market and the investors.In November 2020,the Central Committee of the CCP proposed in the“14th Five-year Plan” that China will commit “to the implementation of a wider and deeper opening of the market”.As the second largest capital market in the world,the extraterritorial jurisdiction mechanism of PRC Securities Law helps to build a healthy capital market,this mechanism is also a necessary component to the further opening and internationalization of the capital market.Just one month after the revision of the Securities Law,the Luckin Coffee Fraud broke out in January 2020,which received unprecedented attention from both China and the United States,and had a significant impact on the reputation of "China Concept Stocks” and the US regulators’ attitude toward them.In addition to considerable amount of the fraudulent increase in revenue,the Luckin Coffee Fraud gained an unprecedented attention because it took place at a historic time point where several historic events,including the cold Sino-US relationship,the continuing scandals of “China Concept Stocks”,the long-term fruitlessness of Sino-US regulatory cooperation and the addition of extraterritorial jurisdiction mechanism of PRC Securities Law,had collided together.There are voices that the case may become PRC Securities Law’s first extraterritorial application.However,as Paragraph 4 of Article 2 of the Securities Law is more of a brief announcement,this paragraph does not provide an applicable mechanism for the extraterritorial application of PRC Securities Law,which makes this paragraph not operable at all.This thesis traces back to the source and analyzes the US extraterritorial jurisdiction system of the securities law,which is the original country of the “effect test” adopted by PRC Securities Law;This thesis clarifies the prehistory of the “effect test”,including its statutory basis,case law basis,deficiencies and the current status in the United States;Then,this thesis returns to PRC Securities Law and analyzes the connotation of all elements in the article in combination with the text of Paragraph 4 of Article 2,existing legal documents and relevant cases.In this process,the US experience is an important material for comparison,criticism and reflection.This thesis argues that the extraterritorial jurisdiction clause of PRC Securities Law requires that the impact of an overseas act on the PRC market order and domestic investors shall be judged from the perspective of predictability and significance;Also,it is necessary to,under the international comity principle and blocking statute,consider whether other jurisdictions have greater interests in governing of the overseas act.If so,PRC shall not claim jurisdiction therefor.After clarifying and comparing the systems of China and the United States,this thesis analyzes the Luckin Coffee Fraud case.Compared with the US society and American investors in this case,the interests of China are not enough to claim jurisdiction over this case,because of its listing being in the US and the lack of direct investment channel to Luckin Coffee for Chinese investors.In fact,the extraterritorial jurisdiction mechanism of the Securities Law has little effect on the “China Concept Stocks”.This thesis argues that,ultimately,the extraterritorial application of securities law depends on a country’s economic level,political strength and international regulatory capacity.The application mechanism of the extraterritorial jurisdiction clause of PRC Securities Law will develop and change along with the development of PRC’s comprehensive strength.At the current stage,the economic and international political strength of China is gradually rising,but still does not reach the level for a frequent application of extraterritorial jurisdiction of the Securities Law.With the increasing economic and political position of China,the extraterritorial application mechanism of the Securities Law will be gradually enriched.