China stock market
The formation of an international settlement in Shanghai as a result of the Treaty of Nanking in the year 1842 and the subsequent agreements between the Chinese and foreign governments led to foster development of foreign trade and the subsequent opening up of a stock market in Shanghai. Even though a stock market similar to the modern stock exchanges has been started in China in the late 1860s, the turbulent history and political upheavals had its effect on the Stock markets that were in operation then. The Second World War and the communist revolution totally halted the operations of all stock markets in China. The economic reforms in the late 1980s and the emphasis on the socialist market economy resulted in the revival of the Chinese stock market. At present the Shanghai Stock Exchange is the largest stock market in Mainland China. However Mainland China has another much smaller stock exchange called the Shenzhen Stock Exchange located in the city of Shenzhen. With the merger of Hong Kong with Mainland China, the Hong Kong Stock Exchange situated in the special administrative region of Hong Kong, with its own separate history is the largest stock exchange in China presently.
The Shanghai Stock Exchange
After several decades of shutdown, the present Shanghai Stock Exchange was re-opened for operations on December19, 1990. Currently administrated by the China Securities Regulatory Commission (CSRC) it is registered as a non-profit organization. Before the Second World War, shares of banks, financial institutions and some companies were traded. The boom in rubber and cotton cultivation had its effect on the Shanghai stock market and shares of rubber and cotton plantations were also traded. In the 1930s the market was totally dominated by the rubber share price movements. Today, company stocks and corporate bonds dominate the Shanghai Stock Market. After booming for nearly 10 years, there was a slump in the stock market for nearly 4 years from the year 2001 to 2005. However in the year 2006, the largest ever Initial Public Offering (IPO) in the world amounting to about 21.9 U.S dollars was launched by the Industrial and Commercial Bank of China (ICBC) in both the Shanghai and Hong Stock markets.
Securities traded in the Chinese stock market
Stocks, bonds and funds are the three main categories of securities traded in the Chinese Stock Market. Treasury bonds (T-bond), Corporate bonds and convertible corporate bonds are the main bonds traded and the T-bond is the most active of its kind in China. Two types of shares are issued in the Chinese Stock Market. They are the A-shares and the B-shares. A-shares are priced in the local Renminbi (RMB) Yuan currency and the B-shares are quoted in U.S dollars. Till recently possession of A-shares was allowed only for domestic investors and B-shares were available to both domestic and foreign investors. With the implementation of more reforms in the stock market sector, foreign investors are now allowed to trade in A-shares as well under certain conditions specified in the Qualified Foreign Institutional Investor (QFII) system. Plans are being formulated to merge the two types of shares. The Chinese stock market conducts business every week from Monday to Friday, even though it is closed on Saturday and Sunday and other Chinese public holidays.
Prominent stocks in the Chinese Stock Market
The maximum number of stock listings in the Chinese Stock Market is in A-shares. The Shanghai Stock Exchange index is the most commonly used index, and it reflects the market performance of the listed shares on any given day. The most commonly listed A-shares and B-shares normally decide the rise and fall of the stock market index. The top five largest stocks listed in the Chinese stock market and their market values in Chinese Yuan are :
1. Industrial and Commercial Bank of China (1,397.86 billion)
2. China Life Insurance (904.78 billion)
3. Bank of China (887.31 billion)
4. Sinopec (692.22 billion)
5. China Merchants Bank (201.09 billion)
The largest traded stocks in terms of their market capitalization are:
1. China Petrochemical
2. Baosteel
3. Huaneng International
4. China Unicom
Minimum requirements to get listed
According to the Securities law and
the Company law of the
1. Public
issues of shares must be approved by the State Council Securities Management
Department
2. The total share capital of the company must be above RMB 50 million
3. The company must have made profits continuously for the last 3 years.
4. More than 1000 persons must hold shares in value exceeding RMB 1000 each
5. More than 25 percent of the share capital of the company must be publicly issued shares
6. When the total share capital exceeds RMB 400 million, the publicly offered shares must be more than 15 percent.
7. The company must have an excellent track record for the past 3 years and never got implicated in any illegal activity or false accounting practices.
Investing in the Chinese Stock Market
For the first time in history, the Shanghai Stock Exchange index has breached the 3000-point mark recently. The strong performance by most of the listed companies and the increase in corporate profits by as high as 20 percent are the main factors that fuelled the present stock market boom. For the promising Chinese middle class with extra incomes, low interest rates in banks and other traditional savings accounts made the stock market a healthier investment option. Severe restrictions on Chinese nationals from investing in stocks abroad normally force them to invest in Stocks in their own country. According to the estimates of Price Waterhouse Coopers, Shanghai could see more than 200 billion Yuan in IPOs this year, which in itself is going to be another record.
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