An Overview Of The Chinese Stock Market

Chinese stock market for foreign investors

The Chinese stock market is one of the most volatile markets in the world. It is also the largest as measured by the total capitalization of its listed companies, and as such it attracts a lot of attention from both domestic and foreign investors. The Shanghai Stock Exchange (SSE) had been established in December 1990 and had surpassed the Tokyo Stock Exchange to be the largest exchange in Asia with a market capitalization of US$4.9 trillion as of 31 October 2014. As of 2020, that number has reached a staggering US$12.2 trillion, which is a clear indicator of China’s growth. China is a big player, to the point that some have declared this century to be the Chinese century. In the past decade, China’s tech industry has grown massively. In 2016, it accounted for three of the world’s top four most valuable companies by market capitalization: Alibaba Group Holding, Tencent Holdings and China Mobile. The country is home to the biggest smartphone maker in the world — Huawei — and a rapidly growing number of homegrown mobile apps. For the longest time, China’s financial markets were closed off to foreign investors but over the course of the last few decades, the country has loosened its restrictions. As a foreign investor, here’s what you can expect…

Mainland Chinese Stock Market: an overview

As the Chinese economy continues its meteoric growth in recent years, the mainland Chinese Stock Market has also evolved significantly. It is no longer a game for individual investors only, but it has become an important channel for corporations to raise capital and to spread their risks. Buying shares in Chinese companies have become commonplace as the economy continues to skyrocket. The Shanghai Stock Exchange (SSE) was officially founded in 1990, and the Shenzhen Stock Exchange (SZSE) was founded in 1991. On November 26, 2014, after 24 years of development, China launched a new round of reform on its stock market system. The purpose is to enable the market to play a stronger role in resource allocation and improve the equity culture of enterprises and investors.

The Shanghai Stock Exchange

The Shanghai Stock Exchange (SEE) consists of two trading boards – namely the Main Board and the Science and Technology Innovation Board. The latter of the two is primarily referred to as the STAR Market and caters mainly to smaller and innovative tech companies with a focus on 5G technology, new energy, semiconductors and biopharmaceuticals. To date, the STAR Market has 340 listed securities. The STAR Market is deemed important in terms of China’s high tech and upcoming industries and serves as an incubator for smaller companies looking to raise capital. In some ways, one could view it as the penny stocks of the SEE. The Main Board on the other hand is home to big and established Chinese companies, listing both A and B-shares. All companies listed on the SEE must be annually audited and submit quarterly reports.

The Shenzhen Stock Exchange

The Shenzhen Stock Exchange (SZSE) is a stock exchange that provides listing services for companies engaged in the high-tech industries, including hi-tech manufacturing and real estate. The SZSE has not only become one of China’s three major markets, it also plays an important role in the global economy. One of the two stock exchanges operating independently in the People’s Republic of China, it is supervised by the China Securities Regulatory Commission. The SZSE is limited to domestic companies with shares that have been approved to be listed on the exchange. The SZSE consists of two main trading boards, namely the Main Board and the GEM (Growth Enterprise Market) board, commonly referred to as the ChiNext.