More than 6 billion yuan (US$787 million) in public funds was embezzled in the past four years and the money went into the stock market, the Shanghai High People's Court said.

Of 317 cases brought before the city's two intermediate courts and high court between 2003 and 2006, 105 involved embezzlements totaling 6.32 billion yuan from Shanghai's public funds.

The court said 4.1 billion yuan was from state-owned enterprises, 1.6 billion yuan from financial institutions, 100 million yuan from the Shanghai social security fund, 260 million yuan from the housing maintenance fund, 45 million yuan from labor unions, 16 million yuan from education and 200 million yuan from public utilities.

Zou Bihua, a presiding judge, said the 100 million yuan from the Shanghai social security fund was part of the 3.7 billion misappropriated from the fund last September.

Most of the money from the embezzlements ended up in the stock market through state bonds. According to regulations, public funds are only allowed to be invested in safe vehicles like State bonds.

"They purchased State bonds, then sold them, and put the money into the stock market," said Qi Qi, a deputy director with Shanghai High People's Court.

According to the court, "the embezzlement is a result of improper supervision of public funds. This is becoming a major threat to the stability of the stock market and to funds".

"There has not been any effective mechanism in the country to supervise the operation and management of public funds, and as a matter of fact it is difficult to curb their malpractices," Qi said.

"The volatility of stock markets can cause huge losses to public funds."

Qi said the Shanghai High People's Court is conducting a survey with the Shanghai Stock Exchange on risks currently threatening the stability of the bourse. It has also appealed to relevant departments to strengthen supervision.

The Shanghai No 2 Intermediate People's Court recently ordered the Jiabao Group to compensate 25 investors. The listed group faked its sales revenue in its year-end performance report.

The Beifang Stock Company and Guotai Junan Securities are being investigated for illegally pooling public savings. The two pooled more than 8.3 billion yuan of public savings, and lost 1.5 billion yuan in investments.

(China Daily June 20, 2007)