China Share Market

 

China Share Market is a relatively young one with huge potential in it.

China in itself is a wonder to the whole world and is becoming the model for many developing and underdeveloped ones. It is growing at a rate of 9-to-10% per annum. This exclamatory success has created strong investors’ (both foreign and domestic) confidence on China and its effects can also be seen in the China Share Market.

 

China Share Market is a relatively young one with huge potential in it.

China in itself is a wonder to the whole world and is becoming the model for many developing and underdeveloped ones. It is growing at a rate of 9-to-10% per annum. This exclamatory success has created strong investors’ (both foreign and domestic) confidence on China and its effects can also be seen in the China Share Market.

China Share Market is witnessing a portfolio investment mania which saw a 130% gain in 2006 and has already crossed 50% profit margin within mid-May,2007. In fact, the market capitalization of the overall China Share Market upto May, 2007 is US$2.3 trillion only lagging behind Japanese Share Market(US$4.7 trillion) in Asia. It is being projected by many analysts and economists that this fast rising market is going to be the 2 nd largest Share Market after USA within a span of 12 years.

History of China Share Market

Economic reform started in China in 1979. In this process the Chinese government first reformed the agriculture economic system. After that they had started the industrial reform. In 1986 government allowed some of the companies to convert into share holding ones by issuing shares to the employees and to the public but didn’t allow the trade of these shares. In 1990, Chinese government facilitated the investors to trade the shares in the market. For this they set up two stock exchanges in China, one is Shanghai Stock Exchange and the other is Shenzhen Stock Exchange. Both the exchanges were set up in 1990. Thus it is evident that the China Share Market is still in its first stage and has passed only 17 years.

 

China Share Market mainly consists of two stock exchanges :-

Shanghai Stock Exchange

Shenzhen Stock Exchange

Shanghai Stock Exchange is the largest Stock Exchange of Mainland China and is headquartered in Shanghai city. It was re-established on 26.11.1990 and started operating from 19.12.1990. During the fiscal year 2006, the total listed companies of Shanghai Stock Exchange was 842, its annual turnover was 5781.6 billion Yuan, and its market value was 7161.2 billion Yuan. The most common index of Shanghai Stock Exchange is SSE Composite Index which was launched on 15.07.1991. It has reached 2675.47 mark at the end of 2006 fiscal.

Mainly there are three types of securities traded in Shanghai Stock Exchange and they are :-

Stocks

Stocks traded in Shanghai Stock Exchange are of two types :-

A-shares were initially meant for the Chinese investors only and are priced in the domestic currency called Rinminbi Yuan. But after the implementation of the reforms in Dec’2002, foreign institutional investors have also been allowed to invest in A-shares under the system of QFII (Qualified Foreign Institutional Investor).

B-shares were meant for the foreign institutional investors and are priced in US$. Chinese people were not allowed to transact in the same because Chinese laws didn’t allow the domestic investors to freely exchange foreign currency. But since 2001 domestic investors were also allowed to invest in B-shares.

Bonds

Bonds traded in Shanghai Stock Exchange are of three types :-

Treasury Bonds or T-bonds
Corporate Bonds
Convertible Corporate Bonds

Funds

Shenzhen Stock Exchange is headquartered in Shenzhen of Mainland China. The companies listed in this bourse are the ones in which the Government of China maintains its controlling stake. Prior to 2005, most (2/3 rd ) of the stocks in Shenzhen Stock Exchange were not allowed to be traded which caused contradictions between the traders and the government. It is only after 2005, when the Chinese stock issue reform was implemented, that the investors were allowed to trade in these non-tradable shares. Blue Chip Composite Index is the main index of Shenzhen Stock Exchange launched in Jan’2005.

In this short span of time, approximately 17 years, the China Share Market has seen both highs and lows. But, the whole world is really upbeat about the China Share Market as the Chinese Economy is marching ahead like anything with a growth rate of 9% annually. But some of the analysts are also cautious about the share market because they think that due to excessive speculations the market is showing signs of overheating and the bubble might burst in the near future.