Authorities on the Chinese mainland have taken a major step forward in protecting minority shareholders’ rights by allowing class action lawsuits in what has been hailed as a landmark reform after scandals involving two listed companies, Luckin Coffee and Kingold Jewelry.

The decision of the Chinese Supreme Count has greatly lowered the cost by spreading it among a group shareholders seeking redress in the court for alleged irregularities by the company management. Such legal action in the past could only be taken by individual investors who were usually discouraged by the high legal fees.

Class action law suits by disgruntled shareholders are common in the United States and some European jurisdictions. They are seen as an additional deterrent to shareholders’ abuse because of the potentially high cost to the offenders.

The latest development is of particular significance in the mainland market where the regulatory agency is seen to be understaffed and lacking in experience to handle increasingly complex cases. The grossly inflated sales figures of Luckin Coffee and the fake gold at Kingold Jewelry have shown up the inadequacies of the auditors and regulators.

Class action law suits are not permitted in Hong Kong. Any proposal for reform is expected to be vigorously opposed by the powerful business community on the pretext that they don’t want to see Hong Kong becoming a litigation-happy society. They are probably right judging by the large number of applicants for judicial reviews in recent years.

But the rising dominance of mainland companies on the local stock exchange, accounting for more than 50 percent of the total market capitalization, has made it pertinent for Hong Kong to seriously consider adopting the mainland law in protecting minority shareholders’ rights.

This argument is based on the view hold by many investors that the penalties for shareholders’ abuse by corporate managements lack the bite of an effective deterrent to such crimes.

To be sure, the integrity and effectiveness of the watchdog agency are seldom in doubt. But an added layer of protection will be very much welcome by minority shareholders.