气 The Shanghai Stock Exchange hall. uch as Haier Electronics(producing dary share transactions are s mentione eigners, mostly appliances and electronic products) conducted electronically, similarly to institutional investors or overseas Chi and Tsingtao Beer. Shares are issued in the Nasdaq Stock Market. Over the nese, were initially limited to tap three categories: state-owned shares, past Io years, Chinas two stock China's"B"share market of about which are the majority (about 6o exchanges have grown rapidly and I20 share-issuing companies. percent) but not publicly traded; legal experienced extreme volatility. The Recently, however, the Chinese gov person shares(25 percent)owned by major reasons for market volatility ernment opened the"A"share market government institutions and also not have been changing government to more foreign investors in the form publicly traded; and the rest, individu- policies(such as deciding how many of "qualified foreign institutional ally-owned shares, publicly traded companies can be listed, permitting investors, " but with limitations and on the two exchanges and comprising selected foreigners to invest in"A" restrictions that are still under discus nly rcent of the tot shares, and deciding when to sell sion. The securities service sector shares. This structure has guaranteed government-owned shares), market (investment banking services) had continued Chinese government major- manipulations such as insider trading, been almost entirely closed to foreign ty ownership and control the relatively small size tradable shares, investment bankers with the exception A second distinct feature of the and a lack of institutional investors. of the China International Capit Chinese securities markets is that To counter these swings and upgrade Corporation(CICC), which is tradable shares are divided into two Chinas emerging stock market sys- gan Stanley's joint venture in classes: "A"shares trade exclusively tem, the government has established with the China Construction in Chinese currency, comprise about the Chinese Securities Regulatory and three smaller partners.H 95 percent of tradable shares, and are Commission, similar to the SEC in the available only to Chinese investors. U.S., to oversee securities issuing and Chen Ji is a professor in the College of The remaining 5 percent of tradable secondary market trading practices. a Business at the University of colorado shares, called"B"shares, are traded in modern legal and regulatory frame- at Denver (UCD). Steve Thomas is a U.S. currency in Shanghai and in work based on internationally accepted professor in the department of political Hong Kong currency in Shenzhen and practices has also been established Sciences at ucd are purchasable by both foreigners and Chinese possessing foreign cur- rency.“A”and“B” shares give equal ownership rights in Chinese compa- nies, although there continues to be a major discrepancy in price between the same“A”and“B” shares,with ted fre high of zo percent to a recent low of 40 percent. This division of shares was intended to protect China' s infant“A” share market from possible foreign financial control.“B” shares were designed for foreign investors, but became available to Chinese investors holding foreign currency in 20o1 Shanghai Security Exchange before I949 Www. finanCialhistorY.org FINANCIAL HISTORY SPRING 2003www.financialhistory.org Financial History ~ Spring 2003 31 such as Haier Electronics (producing appliances and electronic products) and Tsingtao Beer. Shares are issued in three categories: state-owned shares, which are the majority (about 60 percent) but not publicly traded; legal person shares (25 percent) owned by government institutions and also not publicly traded; and the rest, individu￾ally –owned shares, publicly traded on the two exchanges and comprising up to only 15 percent of the total shares. This structure has guaranteed continued Chinese government major￾ity ownership and control. A second distinct feature of the Chinese securities markets is that tradable shares are divided into two classes: “A” shares trade exclusively in Chinese currency, comprise about 95 percent of tradable shares, and are available only to Chinese investors. The remaining 5 percent of tradable shares, called “B” shares, are traded in U.S. currency in Shanghai and in Hong Kong currency in Shenzhen and are purchasable by both foreigners and Chinese possessing foreign cur￾rency. “A” and “B” shares give equal ownership rights in Chinese compa￾nies, although there continues to be a major discrepancy in price between the same “A” and “B” shares, with “B” shares discounted from a high of 70 percent to a recent low of 40 percent. This division of shares was intended to protect China’s infant “A” share market from possible foreign financial control. “B” shares were designed for foreign investors, but became available to Chinese investors holding foreign currency in 2001. Secondary share transactions are conducted electronically, similarly to the Nasdaq Stock Market. Over the past 10 years, China’s two stock exchanges have grown rapidly and experienced extreme volatility. The major reasons for market volatility have been changing government policies (such as deciding how many companies can be listed, permitting selected foreigners to invest in “A” shares, and deciding when to sell government-owned shares), market manipulations such as insider trading, the relatively small size tradable shares, and a lack of institutional investors. To counter these swings and upgrade China’s emerging stock market sys￾tem, the government has established the Chinese Securities Regulatory Commission, similar to the SEC in the U.S., to oversee securities issuing and secondary market trading practices. A modern legal and regulatory frame￾work based on internationally accepted practices has also been established. As mentioned, foreigners, mostly institutional investors or overseas Chi￾nese, were initially limited to tap China’s “B” share market of about 120 share-issuing companies. Recently, however, the Chinese gov￾ernment opened the “A” share market to more foreign investors in the form of “qualified foreign institutional investors,” but with limitations and restrictions that are still under discus￾sion. The securities service sector (investment banking services) had been almost entirely closed to foreign investment bankers with the exception of the China International Capital Corporation (CICC), which is Mor￾gan Stanley’s joint venture in China with the China Construction Bank and three smaller partners. Chen Ji is a professor in the College of Business at the University of Colorado at Denver (UCD). Steve Thomas is a professor in the Department of Political Sciences at UCD. FH The Shanghai Stock Exchange hall. Shanghai Security Exchange before 1949. © Chinese Securities Certificate Rarities Collection © Chinese Securities Certificate Rarities Collection