China’s Stock Markets – An Introductory Guide for Foreign Investors
China’s stock markets are some of the largest in the world, with total market capitalization reaching RMB 79 trillion (US$12.2 trillion) in 2020. China’s stock markets are seen as a crucial tool for driving economic growth, in particular for financing the country’s rapidly growing high-tech sectors.To get more
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Although traditionally closed off to overseas investors, China’s financial markets have gradually been loosening restrictions over the past couple of decades. At the same time, reforms have sought to make it easier for Chinese companies to list on onshore stock exchanges, and new programs have been launched in attempts to lure some of China’s most coveted overseas-listed companies back to the country.
In this article, we introduce the different stock exchanges on the Chinese mainland, how different shares are classified, and what avenues are available for foreign investors to participate in the world’s fastest-growing capital market.There are currently two main independently operated stock markets in the Chinese mainland: the Shenzhen Stock Exchange (SZSE) and the Shanghai Stock Exchange (SSE). A third stock exchange in Beijing was also recently announced.
The SSE was the first modern stock exchange to open in China, with trading commencing in 1990. It has now grown to become the largest stock exchange in Asia and the third-largest in the world by market capitalization, which stood at RMB 50.6 trillion (US$7.8 trillion) as of September 2021. Stocks (both A-shares and B-shares), bonds, funds, and derivatives are traded on the exchange.
The SEE has two trading boards, the Main Board and the Science and Technology Innovation Board, the latter more commonly known as the STAR Market. The Main Board mainly hosts large, well-established Chinese companies and lists both A-shares and B-shares. The STAR Market, as is implied by the name, is heavily geared toward smaller innovative tech companies, in particular those engaged in strategically important fields, such as biopharmaceuticals, 5G technology, semiconductors, and new energy. The STAR Market currently has 340 listed securities.
The STAR Market is seen as important for China’s high-tech and emerging industries, providing a space for smaller companies to raise capital in China. This is especially significant for technology companies that may be viewed with suspicion on overseas stock exchanges.
The SSE is directly administered and run as a non-profit by the China Securities Regulatory Council (CSRC). Companies listed on the SSE are required to submit an annual audited report, as well as quarterly reports, which can be unaudited. The Shenzhen Stock Exchange (SZSE) is a stock exchange based in the city of Shenzhen in southern China’s Guangdong province. Launched shortly after the SSE, the SZSE has grown to become the seventh-largest in the world, with a market capitalization of RMB 37.4 trillion (US$5.7 trillion) as of September 2021. The SZSE offers trading in A-shares and B-shares, funds, asset-backed securities, bonds, and options.
The SZSE has two main trading boards, the Main Board, and the Growth Enterprise Market (GEM) board, also known as the ChiNext. A previous board, the SME board, was merged with the Main Board in April 2021.
As befits its position in the Greater Bay Area (GBA) region, the SZSE is a magnet for manufacturing companies, which make up a majority of the companies listed on the Main Board (many of these companies were migrated over from the SME board). Many of the companies listed on the Main Board are also state-owned or partially state-owned.
Launched in 2009, the ChiNext mirrors the Shanghai STAR Market, focusing on small up-starts, in particular those in high-tech and emerging industries. In 2020, the CSRC allowed unprofitable companies to list on the ChiNext.
