Primary Market

From 1990 to 2000, China's stock issue was carried out dependent on the examination and approval of the regulatory authorities. In March 2001, the approval mechanism was officially established for stock issue. In February 2004, the sponsorship system was launched for initial public offerings. Accordingly the pricing model for IPOs was changed from the fixed price method to the book building method.

Secondary Market

In China, securities have been traded with membership systems and centralized paperless trading. Shanghai Stock Exchange and Shenzhen Stock Exchange provide places and facilities for centralized transactions. Investors engage in the trade through designated members of the two exchanges. The members accept and execute their customers' trade orders through their service personnel or self-service devices such as telephone, self-service terminal or Internet. In the secondary market, there are main board, SME Board and ChiNext.

1. Main Board

By the end of May 2010, there have been 1,863 listed companies. The total market capitalization was RMB23.95 trillion with the negotiable market capitalization of RMB14.35 trillion, ranking third in the world. Investors opened nearly 138 million stock accounts and over 30 million funds investment accounts.

2. SME Board

By the end of May 2010, there were 310 listed companies. The stock issued capital was 76.85 billion shares with stock negotiable capital of 36.27 billion shares. The total market value was RMB1.54 trillion with stock negotiable market value of RMB676 billion.

3. ChiNext

It is also known as the "third board market" and was officially launched on Oct 30th 2009. On one hand, ChiNext provides a channel for the shares of delisted companies to be traded. On the other hand, ChiNext addresses the tradable issue of legal person shares of the several companies left over from the original STQA and NET systems. By the end of May 2010, there were 28 listed companies.

Stock

The shares of China's listed companies are divided into A share, B share, H share, N share and S share in terms of issuing stock exchanges and target investors.

1. A Share

The official name of A share is Renminbi common stock. It is a common stock issued by Chinese companies for institutions, organizations and individuals in China (excluding investors from Taiwan, Hong Kong and Macao) to subscribe for and trade in RMB. As of the end of Nov 2009, 1,586 companies listed in the A-share market had issued a total of 2.5 trillion share capital with RMB380 billion raised.

2. B Share

The official name of B share is Renminbi special share. In early 1990s, China was short in foreign exchange reserve and exercised foreign exchange control. Against this backdrop, China allowed domestic enterprises to issue B shares on a trial basis at the end of 1991, in order to absorb international capital. Denominated in RMB, B shares could be subscribed for and traded in US dollar or Hong Kong dollar only by foreign investors before 2001 and also by Chinese individual investors after 2001. As of the end of 2009, 109 companies had issued a total of 10.7 billion B shares capital and raised RMB38.1 billion. 

3. H Share

H shares refer to the shares of companies incorporated in mainland China and traded on the Hong Kong Stock Exchange. Similarly the shares traded on the New York Stock Exchange are named as N shares and those traded on the Singapore Stock Exchange named as S shares. As of the end of June 2009, there were 157 H-share listed companies with the market capitalization of HKD3,870 billion.

Bond

Chinese bonds include the government bonds issued by the Ministry of Finance of China, financial bonds issued by banks and non-bank financial institutions, and corporate bonds, convertible bonds, central bank bills, short-term financing bills and assets-backed securities. In terms of the issue volume, government bonds, central bank bills and bonds issued by policy banks dominate the primary market with a combined market value over 90%. At the end of Dec 2009, the balance of China's bonds market value reached RMB17.52 trillion. In 2008, China’s bonds market posted a total trading value of RMB121 trillion.

Fund

Since 2001, the Chinese fund sector has made continuous product innovations and launched in succession open-ended funds, bond funds, index funds, money market funds, convertible bond funds, LOF funds, ETF funds and QDII funds. As of the end of Nov 2009, China had 60 funds management companies, which managed a pool of 536 funds.

Warrant

Warrant products were launched during the reform of non-tradable shares. Since the first covered warrant was launched in August 2005, 54 warrants had been introduced into the market. As of the end of 2009, there were 8 tradable warrants, all of which were equity warrants. The total turnover of warrant market was RMB6.97 trillion.  

Futures

2008 witnessed a breakthrough in the innovation of commodity futures. The first precious metal futures product – gold futures – was tradable on January 9, 2008. As of the end of 2009, there were 23 commodity futures products covering the agricultural product, metal, energy and chemical sectors. Apart from crude oil futures, all the major bulk commodities futures on the international markets have been listed and tradable in China. At the end of Nov 2009, China's futures market recorded 1.882 billion lots in gross trading volume and RMB113 trillion in gross trading value.

Intermediary agencies

By the end of July 2009, there have been 107 securities companies. By the end of 2008, there have been 171 futures companies in China.

Scope of investment by foreign investors in China

1. Securities business opened to foreign investors under the WTO agreement

China has officially become a member of the World Trade Organization (WTO) since December 2001. Under the WTO agreement, foreign investors are allowed to engage in the following securities business areas:

(1) Foreign securities institutions may directly participate in the trading of B shares.

(2) The representative offices of foreign securities institutions in China may become special members of China’s stock exchanges.

(3) Foreign service providers are permitted to set up joint ventures to conduct the securities investment funds management business in China. At present, foreign shareholders may hold up to 49% of the joint ventures.

(4) Foreign securities companies are permitted to establish joint ventures with a maximum ownership of 1/3 in equity. They can engage in the underwriting of RMB common stocks, brokerage of foreign-oriented stocks, and brokerage and self-dealing of government bonds and corporate debentures.

By the end of 2009, 8 Sino-foreign joint securities companies and 34 Sino-foreign joint funds management companies had been established in China. Shanghai Stock Exchange and Shenzhen Stock Exchange each had three special members and 39 and 19 foreign securities institutions directly engaged in the trading of B shares.

2. Issue of shares and bonds by foreign-funded enterprises in China

Qualified foreign-invested limited companies may issue shares and go public on the stock market in China in accordance with the Some Opinions Relevant to Foreign Investment in Listed Companies promulgated in October 2001. So far several foreign-invested (including Hong Kongese-invested and Taiwanese-invested) limited companies have issued shares and went public in mainland China.

Under the framework of the Third Sino-US Strategic Economic Dialogue (SED), China and the US have reached a common ground: in accordance with the applicable prudence provisions, China agreed to allow qualified foreign-invested companies, including banks, to issue RMB-denominated shares, to allow qualified listed companies to issue RMB-priced corporate debentures, and to allow qualified incorporated foreign banks to issue RMB-denominated financial bonds.

3. Strategic investment by foreign investors in listed companies

In November 2002, China allowed the assignment of state-owned shares and legal person shares in listed companies to foreign investors. And the Measures for the Administration of Strategic Investment of Foreign Investors in Listed Companies took into effect in February 2006, allowing foreign investors to make strategic investment in listed companies that have completed the non-tradable share reform. But the A shares acquired through strategic investment are subject to a three-year lock-up period.

4. QFII

QFII is allowed to invest in the shares (excluding B shares), treasury bonds, convertible bonds and corporate debentures listed on China’s stock exchanges and other financial instruments approved by CSRC.

China has introduced the QFII system since 2002. CSRC officially issued the "Measures for the Administration of Securities Investment within the Borders of China by Qualified Foreign Institutional Investors". QFII is allowed to invest in A shares, treasury bonds, convertible bonds and corporate bonds listed on China’s stock exchanges and other financial instruments approved by CSRC.

At the end of 2009, 91 overseas institutions obtained the QFII licenses with a combined investment quota of USD15 billion.

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