Last month, Caijing, the crime-busting magazine leading the fight against financial malpractice on the Mainland, was sued in a Shenzhen court and lost. The plaintiff, Shenzhen Fountain had filed a defamation suit asking for RMB 3 million against the magazine and one of its freelance writers. The court ruled Caijing owed the company RMB 300 000. In the article, the author had accused the company of irregular accounting practices which had led to inflated profit figures.
China bears quickly jumped to the conclusion that the cause of an independent investigative media was losing steam.
And it's true the case showed some irregularities.
Protectionism can be problematic in China during court cases, especially since Mainland court personnel and budgets are provided locally, not from the central government.
Furthermore, since Mainland listed companies are 95% state-owned, a local court could easily find itself in a situation of adjudicating a case where the company could be majority owned by its "boss," the local government. This is precisely the case that Caijing was facing with the court case in Shenzhen against Shenzhen Fountain.
However, under a supreme court ruling, the plaintiff in defamation case is allowed to sue in the locality where the offence took place, meaning both the lower court trial and the appeal Caijing plans to launch at the intermediary court trial will take place in Shenzhen.
Under Chinese civil law, a 'right to reputation' exists, and comments which attack a person or legal person's reputations must be 'basically accurate' and not involve abusive language.
The debate comes down to whether the figures quoted in the article by the Caijing freelance journalist, whom Caijing says is a qualified stock analyst, are accurate.
But who should bear the burden of proof?
Wei Jingxian, the lawyer from Anli Partners, a local Beijing law firm representing Caijing, says the plaintiff had the primary duty to prove the charges are false.
"The plaintiff should first illustrate why the accusations are false, it's then a secondary duty for the defendant to prove his figures are accurate," he says.
But during the court case, Shenzhen Fountain failed to show convincing evidence that Caijing had erred.
Instead, the court threw the ball in Caijing court and every paragraph and statistic was combed through with the magazine being requested to back up its findings.
The solitary finding the court called into question seems a relatively innocuous one - whether Shenzhen Fountain had invested 180 million yuan in a parking lot in 1996.
But Caijing's deputy managing editor stands by his case.
"We maintain that the calculations of the journalist are correct and that they are based on information that the company itself released," says Wang Shuo, deputy managing editor.
The court awarded Fountain just one tenth of the damages it had originally requested and ordered it to pay almost half the court costs.
But the awards were purely arbitrary, says Caijing's lawyer.
"The decision was made at the discretion of the court that is, randomly even though Shenzhen Fountain could not prove it had suffered financial loss as a result of the article," says Wei.
The plaintiff's request that the money spent on financial disclosure should be reimbursed was thrown out, as was a demand to share in the income made by Caijing as a result of its sales for the issue in which the accusations were carried.
Commentators are worried that the freedom of China's business media could be curtailed by the case.
"You cannot publish stories in China that Falun Gong is a good spiritual practice, that Taiwan should be independent or that Tibet and Xinjiang should be independent, but you can - and PRC citizens have - vigorously criticized the government's policies on stock markets," says Walter Hutchens, a professor at the business school of the University of Maryland a China capital markets specialist.
It would be a major setback for China's reform process if the debate raging in the business pages of the nations newspapers be stifled, he emphazises.
Wei adds that the case is crucial for the protection of Chinese investors who are often abused by listed companies acting in cahoots with fund managers, both legal and illegal.
The case also throws up one irritating weakness in the legal protection afforded to China's investors.
One of the defences erected by Shenzhen Fountain was that Caijing had no right to criticize it since no regulatory body had declared that its financial statements contained false data.
This defence is reminiscent of a ruling by the supreme people's court, that the China Securities Regulatory Commission must first have imposed an administrative penalty on a company, before an issuer can be sued by an investor for fraudulent disclosure.
Since the CSRC is understaffed, and has often had to play catch up with groundbreaking investigators such as Caijing, this simply protects state owned companies who are cooking their books.
When the case goes to appeal, the Caijing team are hoping that the level of competence exhibited by China's judges, notoriously ignorant in technical issues, will be better than in the first trial.
"We're just hoping the intermediary court will be neutral and understand the issues fully. During the first trial, we had to explain the difference between the fiduciary duties of a publicly listed company and those of a private company," said Wei.
In Caijing, the business environment in China has a great asset. Of course, it has a duty to be as accurate and impartial as possible. But the central government has an equal duty to ensure that the vested interests who have made fortunes from stock market manipulation don't have a free ride in dragging the magazine down.
