Investing in China Series: The Basics

August 13, 2009 | Comments Off on Investing in China Series: The Basics

If you are thinking about investing in China, you are definitely not alone. Legendary investor Jim Rogers has been investing in the Chinese stock market since 1986, in his book “A Bull in China: Investing Profitably In The World’s Greatest Market”, he compared the modern Chinese stock market to America in the late 1800s, where “it was a time of unbridled expansion and enterprise and the formation of key industries”. While many hedge funds and institutional investors agree that the prospect of Chinese stocks looks very promising, the Chinese equity market is different to other markets in many ways. Before you jump into investing your money into one of the world’s fastest-growing stock market, make sure you educate yourself on the fundamentals first. Today I am going to introduce the classification of Chinese shares.

3 types of stocks: A-shares, B-shares and H-shares

A-shares are shares that are only available to Chinese citizens (with exceptions, see below) and are settled in Chinese yuan (reminbi). A-shares are traded on the Shanghai Stock Exchange and the Shenzhen Stock Exchange. From 2002 onwards, a small amount of foreign investors are allowed to trade A-shares through the Qualified Foreign Institutional Investors Scheme. There is a quota of US$30 billion. Settlement is T+1.

B-shares are shares that are exclusively available to foreign investors and are settled in foreign currencies. Settlement is T+3.

H-share are issued by Chinese companies listed in Hong Kong, the transactions are done on the Hong Kong Stocks Exchange. Many investors who want to invest Chinese companies trade H-shares. H-shares is by far much more popular than B-shares.

IPO and the exchanges in China
The China Securities Regulatory Commission maintains statistics on IPOs in the 3 legal stock exchanges (Hong Kong, Shanghai and Shenzhen). However the website is only updated irregularly and the last update was done over a year ago in 2008. It seems to be the only official information available on the internet on this matter.

The three major exchanges (Hong Kong, Shanghai and Shenzhen) have different listing requirements. The Shanghai exchange, for example, requires RMB $50 M (US $7.3M) of capital among other things. The exchange website has the specifics regarding listing.

Shanghai Stock Exchange
 http://www.sse.com.cn

Zhengzhou Commodity Exchange
 http://english.czce.com.cn/Default.aspx

China Securities Regulatory Commission
(Governing body of the Chinese world)
 http://www.csrc.gov.cn

Hong Kong Stock Exchange

 http://www.hkex.com.hk


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