Investing in China 101 Part 3: Guide to Chinese Share Classes

Introduction

In the second part of the Investing in China 101 series, Investing in China 101 part 2: Overview of Chinese Stock Exchanges we provided an overview of the three main stock exchanges in China: Shanghai Stock Exchange, Shenzhen Stock Exchange, and Hong Kong Stock Exchange. This article aims to provide an overview of the different share classes of Mainland China affiliated companies that are traded on these three stock exchanges.

A Shares

A Shares are shares of companies incorporated in China Mainland that trade on either Shanghai Stock Exchange or Shenzhen Stock Exchange and with share prices denominated in Chinese Yuan (CNY). Historically, A shares could only be traded by China Mainland investors due to China's restrictions on foreign investment. However, since 2003, select foreign institutions have been able to trade A Shares under the Qualified Foreign Institutional Investor (QFII) system.

Furthermore, since 2014, non-China Mainland individuals has also been able to access A Shares under the Stock Connect programs first mentioned in Investing in China 101 Part 1: The history of the Chinese Stock Market. With the total number of A Shares approaching 4,000 and with a total market capitalization of more than USD 10 trillion, the A Shares market is dwarfing all the other share classes below even if they were combined.

B Shares

B Shares are shares of companies incorporated in China Mainland that trade on either the Shanghai Stock Exchange or Shenzhen Stock Exchange but as opposed to A Shares, B Shares have share prices denominated in USD Dollars (USD) when traded in Shanghai and Hong Kong Dollars (HKD) when traded in Shenzhen. B Shares were historically limited to non-China Mainland investors but since 2001, China Mainland investors with appropriate foreign currency dealing accounts were granted access to the B Share market. As foreign investors are slowly getting better access to the A Shares market, the appeal of the B Shares market has declined resulting in limited liquidity and market capitalization.

H Shares

H Shares are shares of companies incorporated in China Mainland that trade on Hong Kong Stock Exchange with share prices denominated in Hong Kong Dollars (HKD). As H Shares are open for trading to all investors, H Shares are often more liquid than A Shares.

Red chips

Red chips are shares of companies incorporated outside China Mainland (mostly in Hong Kong) that trade on Hong Kong Stock Exchange with share prices denominated in Hong Kong Dollars (HKD). A Red Chip is substantially owned directly or indirectly, by the Chinese government (the name Red chips reflect China’s red flag) with the majority of its revenue or assets derived from Mainland China.

P chips

P chips are shares of companies incorporated outside China Mainland that trade on Hong Kong Stock Exchange with share prices denominated in Hong Kong Dollars (HKD). A P Chip is controlled by Mainland Chinese companies or individual with the majority of its revenue or assets derived from Mainland China.

Summary

The A Shares market is the overwhelmingly largest market for Chinese shares both in terms of number of shares listed as well as market capitalization. Although, foreign investors are slowly getting better access to the A Shares market through QFII and Stock Connect programs there still exists significant restrictions for foreign investors. Foreign investors have full access to B Shares listed in Mainland China as well as full access to H Shares, Red Chips and P Chips listed in Hong Kong.

Please see below for a table summarizing the key information for the different Chinese Share Classes:

Note: Key information was compiled on 17 September 2020 by Nordic Asia Research Team