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China's Stock Market - Part I

China stocks fall into several categories, the main stocks being A-shares, B-shares and H-shares.

A-shares are stocks denominated in the local currency, renminbi (RMB), and listed on the Shanghai (上海) and Shenzhen (深圳) Stock Exchanges. As of June 2004, there were more than 1,290 companies with listed A-shares. The total market capitalization of the A-share market is the equivalent of around US$510 billion, though the shares of twenty-one companies represent one-quarter of this total. Foreign investors were not allowed to buy A-shares until the establishment of the QFII scheme in mid-2003, which allows for funds to flow into the A-share market through qualified financial institutions. Various limitations currently apply to the QFII channel, including a requirement that any shares bought must be held for at least a year before they can be sold.

B-share are stocks which are denominated in foreign currencies (US dollars in Shanghai and Hong Kong dollars in Shenzhen). They were originally created to allow Chinese companies to raise foreign capital and to allow foreign investors to invest in Chinese companies. Chinese investors were originally barred from investing in the B-share market, but this restriction was lifted in early 2001. The market has been plagued by illiquidity however and has a total market capitalization of just US$13 billion. At the end of June 2004, there were 90 companies with listed B-shares, of which 66 have also issued A-shares.

H-shares are stocks issued by companies incorporated on the Chinese mainland but listed in Hong Kong either on the Stock Exchange of Hong Kong (SEHK) or on Hong Kong's smaller Growth Enterprise Market (GEM), a second board with less stringent listing requirements. At the end of June 2004, there were 108 H-share listed companies with a combined market capitalization of around US$ 13 billion.

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