Stock market
A shares and B shares
A shares are common shares issued by Chinese companies which are listed on the Shanghai Stock Exchange or the Shenzhen Stock Exchange. A shares are denominated and traded in Reminbi. Dividends are declared and paid in Renminbi. A shares may only be subscribed for by, and traded among, legal persons and natural persons who are residents of the PRC. B shares refer to common shares of PRC companies that are denominated in Renminbi but traded in foreign exchange on either the Shanghai Stock Exchange or the Shenzhen Stock Exchange. B shares may only be subscribed for by and traded among domestic legal and natural persons and entities with legal income in foreign currency, foreign legal and natural persons and other entities, legal and natural persons from Hong Kong, Macau and Taiwan, and PRC resident aboard and other investors as may be specified by the China Securities Regulatory Committee (CSRC) (See below as to CSRC).
In November 2001, CSRC and MOFTEC jointly issued Several Opinions Concerning Relevant Issues on Listing Companies Involving Foreign Investment, which gives clear instructions on 1) criteria for foreign investment enterprises limited by shares to do initial public offerings of A shares and B shares 2) criteria for applying non-listed shares held by foreign investors to be listed in B shares market, and 3) approval procedures on transfer of non-listed shares of listed companies to foreign investment enterprises. In November 2001, CSRC and MOFTEC jointly issued Several Opinions Concerning Relevant Issues on Listing Companies Involving Foreign Investment, which gives a clear instruction on
1. criteria for foreign investment enterprises limited by shares to do initial public offerings of A shares and B shares
2. criteria for applying non-listed shares held by foreign investors to be listed in B shares market, and
3. approval procedures on transfer of non-listed shares of listed companies to foreign investment enterprises.
H shares, N shares, ADRs, GDRs and the like
PRC joint stock limited companies may issue H shares, a category of ordinary shares, which are listed in Stock Exchange of Hong Kong, or, issue N shares which are listed in the New York Stock Exchange, or issue American Depositary Receipt (ADR) or Global Depository Receipt (GDR) etc.
Red chip companies
Red chip companies are companies which are incorporated and listed on the Stock Exchange of Hong Kong but whose controlling shareholders are PRC entities. These companies are generally powerful, diversified conglomerates which have grown rapidly by injection of assets from their parent companies and raising funds overseas for new investment.
The number of listed companies with A shares and B shares in China's stock markets rose from 949 at the end of 1999 to 1,088 at the end of 2000, worth of RMB4,809.1 billion. The capital raised through issuing of shares and right issues were RMB324.9 billion in 2000.
Bonds market
The Chinese bond markets have emerged as major capital markets, with big growth in the last few years. Up to now, there are three major types of bonds issued and traded:
1. treasury bonds which are issued by the Ministry of Finance on behalf of the State
2. financial bonds which are issued by state-owned financial institutions, and
3. enterprise bonds which are issued by companies. The new domestic debts through the issuance of treasury bonds reached RMB465,7 billion in 2000, an increase of RMB64.2 billion over the previous year.
Convertible bonds
Listing companies and major state-owned companies may issue convertible bonds which are issued by issuers and can be converted into shares within a certain period of time according to conditions stipulated. Listed companies with A shares, B shares, H shares, N shares, ADRs, GDRs and the like are eligible to issue convertible bonds subject to certain criteria and approval. In 2000, the issue of convertible A-share bonds totalled RMB2.85 billion.
Mutual funds
Mutual funds are not new in China. There are 33 close-ended mutual funds currently listed in the Shanghai Stock Exchange and the Shenzhen Stock Exchange. Three open-ended mutual funds have been launched since mid 2001 with more coming soon in the near future. The fund management industry is formally identified by the Administration of Securities Investment Fund Tentative Procedures, issued by the State Council on November 14, 1997. In the last couple of years, mutual fund management has gone through significant changes through the involvement of foreign partners. Upon China's accession to the WTO, joint venture fund management companies will be allowed to establish. Foreign firms will be permitted to hold up to 1/3 of the equity of a joint venture managing securities upon accession and up to 49% by three years after accession. CSRC is under drafting Administrative Measures for Sino-foreign Joint Venture Fund Management Companies which will be promulgated in due course. (Please also see our note on "Fund Management in China").
Securities firms
The first domestic securities firm was established in 1985. Since then, they have been growing very fast both in terms of size and business capability. Domestic securities engage in, among other things, underwriting, propriety trading and B-share trading etc. As to foreign securities firms, except for China International Capital Corporation, a joint venture securities firm that is held by China Construction Bank and Morgan Stanley with the majority of shares, all other foreign securities firms only have representative offices in China. Foreign securities firms are confined to the B-share market. They may have seats on the Shanghai Stock Exchange and the Shenzhen Stock Exchange and conduct B share transactions through a local broker.
Upon China's accession to the WTO, foreign securities institutions may engage directly (without Chinese intermediary) in B share business. Representative offices in China of foreign securities institutions may become special members of all Chinese stock exchanges. Three years after accession, foreign securities institutions will be permitted to establish joint ventures, with foreign minority ownership not exceeding 1/3, to engage in (without a Chinese intermediary) underwriting A shares and in trading of B and H shares as well as government and corporate debts, and launch of funds.
Regulatory body
The main regulatory body of the securities industry in China is the China Securities Regulatory Commission (CSRC). CSRC is responsible for drafting regulations concerning the PRC securities market, formulating policies and rules regulating the PRC securities market, regulating the public offering of securities by PRC companies and the trading of securities in the PRC, and directing, supervising and coordinating all securities institutions in the PRC.
For further information, please contact Luke Filei on luke.filei@cms-cmck.com or by telephone on +86 10 6590 0389.
