the development of china's stock markets
TRANSCRIPT
The Development of the Chinese Stock Markets
Frank Song*
Center for China Financial Research & School of Economics and Finance
University of Hong Kong
Hong Kong, PRC
May 2002
Abstract
I briefly review the history of the development of China’s two stock markets – the Shanghai Stock
Exchange and the Shenzhen Stock Exchange – in the past decade or so. I summarize the basic
characteristics of the Chinese stock markets and evaluate the contributions of the markets to the
Chinese economy. I also discuss the drawbacks and challenges of the Chinese stock markets as
China enters the World Trade Organization.
* Mailing address: School of Economics and Finance, University of Hong Kong. Hong Kong.
Email: [email protected] Telephone: (852) 2857-8507. Fax: (852) 2548-1152. I thank
Chuntao Li and Michelle Leung for their excellent research assistance. Financial aid from Hong
Kong’s RGC competitive Earmarked Research Grants 2000–2001 is gratefully acknowledged.
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The Development of the Chinese Stock Markets
The early 1990s saw the opening of two stock exchanges in the People’s Republic of China- the
Shanghai Stock Exchange in 1990 and the Shenzhen Stock Exchange in 1991. Since then, the
Chinese stock markets have been developing at a rapid rate, contributing greatly to the country’s
economic growth. They provide important stimuli to China’s reform in financing and investment,
corporate governance, and the financial system as a whole. In Section 1 of this paper, I briefly
review the short history of China’s two organized exchange markets. In Section 2, I examine the
current state of the two markets in terms of the number of listed companies, composition of shares,
the investor profile, market turnover, and so on. In Section 3, I evaluate the positive role of the
stock market in the economic development of China and discuss the existing problems with the two
stock markets. In the last section, I conclude with a look into the potential growth and development
of China’s stock markets in the future.
1. The History
In the early 1980s, some economists in China raised the possibility of using a shareholding system
to improve the corporate ownership and governance structure. At the same time, some enterprises
started to issue equity shares to the public in order to raise capital. For example, Shenzhen Baoan
Joint Investment Company made China’s first initial public offering of equities in 1983, followed
by Beijing Tianqiao Baihuo Company and Shanghai Feiyue Yinxiang in 1984. The success of the
early shareholding companies encouraged more enterprises to follow, and shareholding became a
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general practice accepted by the government. The increasing number of shareholding companies
and equity shares created a demand for exchange of these shares among shareholders. By the late
1980s, the over-the-counter trading of shares had become popular in cities such as Shanghai and
Shenzhen, where shareholding companies concentrated. In order to discourage unorganized and
black-market trading, the government established the Shanghai Stock Exchange in December 1990
and the Shenzhen Stock Exchange in July 1991. The setting up of the two exchanges has helped to
centralize the trading of shares and promote advanced trading mechanisms such as computer
matching of orders and paperless trading. These innovations have improved tremendously the
efficiency of the market for equity share trading. In 1991, the two exchanges also launched B-
shares, denominated in U.S. or Hong Kong dollars.1 The B-shares were available exclusively for
investors outside mainland China, and they were designed to attract foreign-currency investment to
China. 2 In late 1993, the government further stipulated that the shareholding system and stock
market are essential components of China’s socialist market system. It was realized that
shareholding as a modern corporate structure has the advantages of being transparent in ownership
of property and of accumulating public capital for large-scale production. Further, the government
realized that the stock market is an important part of a market system that helps efficiently allocate
society’s resources.
1 China further issued H-shares in Hong Kong and N-shares in New York after 1993.2 The Chinese government opened B-share trading to domestic investors only recently. Among other problems, B-shares had low liquidity in trading. China has also accumulated sizable foreign-currency reserves (currently over 200 billion U.S. dollars), and Chinese citizens now hold a large amount of foreign currencies. So the initial need for raising hard currency from foreign investors is diminished.
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Because of the direct impetus from the government, China’s stock markets underwent fast growth
in 1992 and 1993. Not only was there an increase in the number of companies listed on these
markets, the market infrastructure was also improved. Both exchanges made important progress in
their trading systems. Meanwhile, the number of securities companies to serve the ever-growing
population of listed companies and investors was also on the increase. In addition, the government
enacted several important laws and regulations to formalize the operation of the stock market. In the
next section, I survey the current state of China’s stock markets in terms of the size of the market,
the distribution of publicly listed companies, and securities-market regulations and laws and
compare China’s stock markets with other major markets and with markets in neighboring
economies.
2. The Characteristics of China’s Stock Markets
2.1 Overall Growth of the Markets and Their Contribution to the Economy
By 2000, China’s two stock markets had issued a total of 379.17 billion shares, of which 135.43
billion are negotiable shares. Their total market value is 4,809.09 billion reminbi (RMB), about one-
third of which, 1,608.75 billion RMB, is negotiable (see Table 1). This represents a dramatic
increase from 1992 -when the total issued capital and total market value were only 6.89 billion
shares and 104.81 billion RMB respectively. Table 1 also provides information about the number of
listed companies (A and B shares), which increased from 53 in 1992 to 1,088 in 2000. During the
same period, the number of B-shares increased from 18 to 114. H-shares – shares listed on the
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stock market of Hong Kong – also increased, from 6 in 1993 to 52 in 2000. In addition, the total
trading volume and total turnover expanded from 3,795.39 million shares and 68.125 billion RMBs
to 475,838.21 million shares and 6,082.67 billion RMB, increases of more than 125 and 89 times
respectively. Both the Shanghai Stock Exchange Composite Index and the Shenzhen Stock
Exchange Composite Index more than doubled in the nine-year period. Finally, the number of
investors increased from 2.16 million in 1992 to more than 58 million by the end of 2000. In sum,
Table 1 shows tremendous growth in China’s stock exchanges in the last decade.
I now turn to the issue of the relative contribution of China’s stock market to China’s aggregate
investment and GDP. Table 2 reports the ratio of market capitalization to GDP and that of domestic
raised capital to newly increased fixed assets. China’s stock-market capitalization as a percentage of
GDP increased from a mere 3.93% in 1992 to more than 50% in 2000. The ratio of negotiable
market capitalization to GDP increased from 2.06% in 1994 to 17.99% in 2000. However, its
contribution to China’s domestic raised capital, though also on the rise, is still small, from 0.60% in
1992 to 3.04% in 1999. Figure 1 provides a graphical representation of the ratio of market
capitalization to GDP from 1992 to 1999. The dramatic rise in the importance of stock markets in
the Chinese economy is apparent. Table 3 shows the ratio of domestic capital raised in the stock
market to the amount of loans by state-owned banks. It increased from 5.70% in 1993 to 14.88% in
1999. Although this ratio has been increasing in recent years, its magnitude is still very small,
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suggesting the important role of China’s commercial banks in the financial sector and the remaining
great potential for the growth of stock markets.
Table 1 also provides the number of investors in China’s two stock markets since 1993. A rapid
increase was observed over the past decade in the number of investors, from 2.16 million in 1992 to
more than 58 million in 2000. However, the ratio of investors to the total population remains low. In
light of the large household savings in China (7400 billion RMB in 2000 and growing), there is
great potential for the growth of China’s investor population. So from either the demand or the
supply side, there is great room for China’s stock market to develop. Indeed, according to a high-
ranking government official in China, within five years, China will have between 2,000 and 3,000
listed firms and the Shanghai Stock Exchange will become one of the prominent stock markets in
the world.3
2.2 The Distribution of Publicly Listed Companies
China’s publicly listed companies come from a wide range of provinces and cities in China. Table
4 presents the distribution of China’s listed companies across geographical regions. It is shown that
a majority of listed companies come from the more developed eastern coast, while the central and
western regions share the remainder. Table 5 reports the industry distribution of the listed firm. In
the year 2000, 61.03% of the listed firms were in manufacturing and 9.74% were in wholesale and
retail.
3 See “Exchange Upgrades to Lure Foreigners” May 10, 2001, South China Morning Post, Hong Kong.6
Another interesting aspect of China’s stock market is the proliferation of different categories of
shares. Table 6 presents changes of listed companies by share categories in recent years. In the year
2000, 955 out of 1,088 listed companies issued A-shares only, 86 companies issued both A and B
shares, 28 companies issued only B-shares, and 19 companies issued both A and H shares. The
cross listing of shares in different markets generates a lot of interesting research issues. For
example, there is significant difference in price and trading volume of A-shares, B-shares and H-
shares. Responses of these shares to the same fundamental information also differ due to the
segmentation of markets.
In addition to the classification of Chinese listed companies into A, B, and H shares, the
shareholding structure of listed companies is further decomposed into the following:
a. State-owned shares refer to shares obtained by a state institution in exchange for a capital
contribution made by that institution to a corporation.4
b. Domestic legal-person shares refer to sponsor’s shares held by domestic legal persons.
c. Foreign legal-person shares refer to sponsors’ shares held by foreign legal persons.5
d. Private placement of legal-person shares refers to shares issued by private placement and
subscribed by legal persons other than sponsors.
e. Staff shares refer to staff shares issued by private placement of companies and yet not listed
at the report time.
4 See the State Council’s “Interim Measures on the Administration of State-owned Shares by the Limited Companies”.5 Foreign legal persons include the merchants from overseas – Hong Kong, Macao, Taiwan, etc.
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Figure 2 shows that in 2000, state-owned shares accounted for 37%, and domestic legal-person
shares, legal-person shares obtained through private placement, and staff shares together accounted
for 26% of the total shares. Neither state-owned shares nor legal-person shares are allowed to trade
in the market. The publicly traded A-shares, the only shares to be traded in mainland China,
accounted for only 26%. In other words, less than 30% of all the shares of China’s listed companies
are traded on the Shanghai and Shenzhen stock exchanges.
2.3 Securities-Market Regulations and Laws
Like any emerging stock market, China’s stock markets have gone through a series of institutional
reforms. The major motive is to establish the so-called “open, fair, and just” legal and regulatory
framework for the governance of China’s stock market. In the early 1990s, the Shanghai Stock
Exchange and Shenzhen Stock Exchange were mainly governed by the “Interim Rules on
Administration of Shanghai Securities” and “Interim Rules on Administration of Issuing and
Trading of Shenzhen Stock Exchanges”. In May 4, 1993, the State Council issued “Interim
Measures on the Administration of Stock Issuing and Trading”. This is an important regulation for
normalizing the development of the Chinese stock markets. It not only regulates the administration
of the two Chinese stock markets, but also makes detailed rules about the issuing and trading of
shares, the disclosure of information on listed companies, the investigation and punishment of
security crimes, and so on. Later, the government issued further laws and regulations, including the
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“Company Law” and “Rules on Administration of Securities Exchanges”. In July 1999, the
government finally announced the full implementation of the comprehensive “Securities Law”. This
long-awaited law was initiated by China’s National People’s Congress in July 1992. The aim of the
law is to protect the interests of investors, normalize the development of China’s stock market, and
ultimately make China’s stock market compatible with internationally accepted practice.
China’s regulatory structure for securities markets has changed a great deal over the years. Before
October 1992, China’s stock markets were governed by the central bank – the People’s Bank of
China. In October 1992, the State Council established the Chinese Securities Regulatory
Commission (CSRC). The main functions of the CSRC are to design and implement laws and
regulations for the Chinese securities markets. The CSRC also supervises, among others, the issuing
and trading of securities, and the operation of securities companies and listed companies.
2.4 International Comparison
Although China has made significant progress in the development of stock markets, there still exist
tremendous opportunities for further growth, as shown by comparison with more advanced markets.
Table 7 compares the number of listed companies in major stock markets. In 2000, the total number
of listed companies in China was 1,088, far below the numbers in New York (2,468), London
(2,929), and Tokyo (2,096), but higher than those in some other markets such as Korea (702), Hong
Kong (790), and Taiwan (531). This is especially remarkable in that China has more than 300,000
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state-owned enterprises (SOEs) and many more non-state-owned enterprises. Many of them are
waiting to be restructured and listed on the stock markets.
In trading values, China fell far below New York, London, Tokyo, and even Taiwan, but is above
some others including Hong Kong and Singapore. Table 8 displays the comparison of trading
values of China with major markets.
Table 9 compares turnover ratios across major stock markets. It is clear that China’s turnover ratio
is much higher than in other markets. For example, in the year 1999, the Shanghai Stock Exchange
had a turnover ratio of 421.55, while the ratios in New York and London were 74.61 and 56.70
respectively. Even most emerging markets, with the exception of Korea, have much lower turnover
ratios than those in China.
Table 10 compares price–earnings (P/E) ratios across major stock markets. In 1999, China had a
higher P/E ratio than many markets in the world. However, the P/E ratios are not stable over time
and are sometimes quite comparable with those of other markets.
3. The Evaluation of China’s Stock Markets
China’s stock markets have played an important role in the development of the Chinese economy
and its market system. The stock markets have not only helped Chinese companies to raise the
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much-needed financial capital, but also helped to improve corporate governance of the listed
companies. In this section, I first discuss the positive contributions of the stock markets to China’s
rapid growth in the last decade and then evaluate its existing weaknesses.
3.1. Positive Contributions of the Stock Markets
The stock markets help to expand the financing channels and optimize the capital structure of
China’s listed companies. In the past ten years, China’s stock markets have helped to raise more
than 500 billion RMB for the listed companies. The injection of capital into the listed companies
provides necessary funds. For a long time, China’s enterprises were mainly financed by government
fiscal allotments and bank loans. Since the start of the economic reform, the newly created capital
of enterprises has been coming mainly from bank financing. The over-dependence of China’s
enterprises on bank funding results in a very high debt–asset ratio. For example, before 1995,
China’s enterprises had an average debt–asset ratio of more than 80%. Even in 1999, the average
debt–asset ratio for state-owned and large non-state-owned enterprises was still as high as 61.99%.
With the availability of equity capital from the stock markets, the listed companies have
tremendously improved their asset–liability structure. Today, the average debt–asset ratio of listed
companies is around 50% (see Huang and Song (2002)).
The stock markets have also given impetus to the transformation of management and governance of
China’s SOEs. Before the economic reform, China’s SOEs were dependent on state funding.
Because of the lack of representation of state interests, the managers of SOEs had inadequate
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incentives to operate their businesses efficiently. A shareholding system provides the hope of
reforming that distorted incentive structure by making managers more responsive to the interests of
shareholders. It further encourages managers in SOEs to adopt modern techniques of operation and
risk management. For these reasons, the Chinese government has adopted a policy of using the
stock market as one of the important instruments in its attempt to reform the SOEs. Indeed, most of
China’s listed companies evolved from large and medium-size SOEs. Recently, more and more
listed companies have been merging with or taking over important SOEs, subsequently improving
their performance.
Finally, the development of China’s stock markets has fostered a generation of Chinese investors
and mobilized the allocation of capital in the society. In the past decade or so, there has been a
steady increase in the number of investors. Today, the number of investors exceeds 60 million.
Before the emergence of the stock markets, most people in China could only save their money in
banks in the form of various kinds of deposits. They only had a notion of preserving the value of
their savings, rather than increasing it through investment. Since the opening of the stock markets,
many Chinese have found a rewarding opportunity in investing in stock markets. An increasing
numbers of households in China are participating in the stock markets. The diversion of savings
deposits toward stock markets has enhanced the liquidity of capital in the economy and improved
the allocation of resources.
3.2. The Challenges Facing China’s Stock Markets12
The stock market in China is still at a tender age and faces a lot of challenges. In this subsection, I
provide a brief account of the major challenges for the Chinese stock market. First, this market was
born out of a centrally planned economy and hence inherited the formidable weaknesses of that
economy. The development of the stock markets has been subject to constant interventions from the
government. Rather than leaving the market to decide for itself when to expand or contract, the
government holds the key to the changes of the stock market. The market has been mainly used as
a place to raise much-needed capital for SOEs. Today, most of listed companies in China’s stock
markets are controlled by the state, while a majority of well-run private enterprises are excluded
from access to the stock market. With regard to financing in equity markets, there is tremendous
bias in favor of SOEs over non-SOEs. This is incontrast with the increasing importance of non-
state-owned firms in the Chinese economy (now accounting for more than 2/3 of China’s GDP).
Second, in a mature market, an equity share is classified as common stock or preferred stock
according to differences in equity right and responsibility. In China, before the implementation of
the “Company Law”, equities were classified according to the status of the investors. As discussed
in Section 2, equities of the same company were, in addition to publicly traded domestic A-shares
and foreign B, H, and N shares, further classified into non-publicly-traded state-owned shares,
legal-person shares, and staff shares. The huge difference in transaction cost and liquidity of these
shares makes it impossible for their owners to exercise the same rights and responsibilities with
respect to the same company. In Section 2, we observe that the state-owned shares accounted for
close to 40% of total capital, followed by individual shares and legal-person shares. The shares that
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are publicly tradable accounted for only about 30%, leaving some 70% of shares of listed
companies non-tradable. The representatives of the state shares often dominate the board and
management decisions and ignore the interests of small and public shareholders.
Another drawback of the large proportion of non-publicly-traded shares is that mergers and
acquisitions of listed companies can only be done in private, without resorting to the public market.
In many of these private deals, individual investors and even market regulators were kept in the
dark until in the final stage. This fact implies that the stock market is not able to perform well the
basic functions of fostering the exchange of property rights and efficiently allocating resources. In
order to allow the stock market to perform its due functions, it is essential to have more state-owned
shares and legal-person shares for trading in the market. Recently, the government launched a test
scheme of reducing state-owned shares in listed companies. However, the government is facing a
dilemma in that selling these large state-owned shares will greatly depress the market.
Third, in a mature stock market, the number and pricing of IPOs are determined by investment
banks and listing companies according to the market condition. In China, the government controls
the timing and pricing of IPOs. When the market is down, the government often announces a delay
in the offering. Even if the shares are offered as scheduled, the issuing price may be a lot higher
than the market price, generating a huge loss to investors. When the market is booming, the
administratively determined price is often much lower than the market price, resulting in a great
payoff to investors. Recently, the government has made some attempt to relax its tight control on
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the IPO process by converting it to the system of admission control in which any qualified company
can apply to list its shares on the stock markets. However, there is still a long way to go before a
fully market-driven IPO system is established in China.
Fourth, in the development of China’s stock markets, there is a lack of systematic securities laws
and regulations to govern the operation of the markets. In the early years, the stock markets were
regulated by piecemeal legislation, some of which was combined with departmental regulation by
political establishments over different aspects of the market. Oftentimes, government policy is the
main instrument to govern and control the stock market. For example, when the market is down, the
Chinese government tries to stimulate it by relaxing regulations and policies. When there is a boom,
the government reverses its policy and tries to cool down the market. Unfortunately, the
government often overextends its role in the stock markets and exacerbates rather than reduces
market volatility. The fundamental reason for government’s contribution to volatility and instability
in the market is that the policy for controlling the stock market is itself full of uncertainties in
content, the timing of announcements, and impact on the market, as compared to law and
regulation, which, by their nature, provide more certainty, predictability, and openness. Recently,
the Chinese government has made significant progress in addressing this problem. In July 1999, the
government fully implemented a groundbreaking national “Security Law”. This law was hailed by
observers as the foundation on which China’s securities market would develop.
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Fifth, overall, China’s listed companies were chosen from among the most well-known, efficient,
and rapidly growing firms from various industries and regions in China. But unfortunately, a
substantial number of these companies ignored the necessity of change in their corporate
governance after listing. For example, some listed companies have intricate webs of rights and
responsibilities among the board and high-level management. Oftentimes, the board intervenes too
frequently in the daily operation of the company and the managers are reduced to a rubber-stamp
role. Some listed companies use the capital raised from the market to engage in high-risk
speculations in real estate and stocks, refuse to disclose important information required for annual
and semiannual reports, or ignore the interests of shareholders and use share allocation to replace
dividends. All of these problems boil down to the motivation of the companies to list their shares in
the market. A large number of listed companies treat the stock market as a place to raise money and
gain publicity but ignore the market’s function in improving corporate governance. The government
has also realized the importance of good corporate governance in improving the performance of
listed companies. For example, recently, the CSRC raised the requirement for information
disclosure of publicly listed companies.
Because of the problems discussed above, it is essential for government to strengthen regulations
over listed companies. The listed companies should improve the quality of their disclosed
information. The dividend policy and other internal organizational policies should all comply with
international standards. Listed companies should be prevented from abusing the funds raised in the
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market. Only by reforming the corporate governance of listed companies and adopting regulatory
policies consistent with international standards can China’s listed companies become efficient and
competitive. In this respect, China seems to have a long way to go.
Sixth, the Chinese stock markets are dominated by trading by individual investors. Table 11 reports
the distribution of both A-share and B-share investors. In both A-share and B-share markets, the
individual investors dominate. In the A-share market, more than 99% of traders are individuals
while in the B-share market, more than 93% are individual traders. The individual investors tend to
follow the market in their trading and exhibit apparent herd behavior.
Although China’s institutional investors are few, they account for more than 60% of the capital in
the market. Unfortunately, instead of stabilizing the stock market, these institutional investors tend
to manipulate the market or some individual stocks and profit from the resulting high volatility.
This is because China’s institutional investors are mainly trust companies, finance companies, and
enterprises, with only a very small minority being investment funds. The main goal of many of
these institutional investors is to speculate on the movement of stock markets, and the sources of
their funding are also quite volatile.
Of course, the main reasons behind the excessive short-term speculation as opposed to long-term
investment in China’s stock market are related to the fundamental institutional problems mentioned
above. To the extent that institutional investors such as life insurance companies and pension funds
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tend to hold a long-term view of the stock market, the presence of these institutional investors will
serve to reduce the turnover of trading. This may help reduce the volatility of stock markets. The
Chinese government has recently made some attempts to allow insurance companies to participate
in both the IPO market and the secondary market.
Seventh, besides the Shanghai Stock Exchange and the Shenzhen Stock Exchange, China also has
two electronic trading systems: the Securities Trading Automated Quotations (STAQ) system and
the National Electronic Trading (NET) system. These are NASDAQ-type computerized trading
systems. There also exist several regional trading centers such as Wuhan Securities Trading Center,
Shenyang Securities Trading Center, and Tianjin Securities Trading Center. A-shares are mainly
traded in the two stock exchanges, while legal-person shares are traded in the STAQ and NET
systems. In light of the rapid development of the Chinese economy, the current scale of the two
exchanges no longer satisfies the needs of the increasing number of listed companies. In addition,
because of the location of the two exchanges, China’s financial capital flows from hinterland
provinces to those two coastal cities. This further aggravates the existing shortage of capital in the
hinterland provinces and worsens the imbalance of regional economic development. Because of the
vast land area and differences in the level of economic development in China, it is advisable to have
several more regional stock exchanges in order to meet the demand of local firms. China can
achieve this by reforming and normalizing the current regional securities trading centers and
upgrading them into regional stock exchanges. China can also encourage more over-the-counter
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trading in the STAQ and NET systems. These OTC trading systems may be expanded to trade
legal-person shares and staff shares of the listed companies. Because China’s shareholding system
has many different forms of share structures, a correspondingly versatile stock trading system will
help to meet the needs of shareholding companies in China.
Last, but not least, there is a tremendous challenge to China’s stock markets as China enters the
WTO. Although China has made some attempts to open up its stock markets in allowing foreign
investors to buy B-shares and to issue H-shares in Hong Kong, N-shares in New York, and S-shares
in Singapore, the pace of opening up is slow relative to other financial sectors such as banking and
insurance. This is because some of the prerequisites for completely opening of securities markets
are not yet met. For example, one of the most important prerequisites is complete convertibility of
the RMB through both current account and capital account. China made the RMB fully convertible
under current account in 1998, but its convertibility under capital account is still subject to stringent
control. Another important prerequisite is the development of important financial markets, such as
foreign exchange markets and inter-bank markets, to facilitate the movement of international
capital. China also lacks sophisticated financial instruments such as financial derivatives and short-
sale mechanisms to help investors manage risks in their investment. Finally, as mentioned before,
China still needs to do a lot of work to improve its accounting, regulatory, and legal framework in
order to make it compatible with internationally accepted practice.
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4. Concluding Remarks
In this paper, I provide a brief overview of the development of China’s stock markets in the past
decade or so. When the Shanghai Stock Exchange and the Shenzhen Stock Exchange opened for
trading in the early 1990s, the number of stocks was small and the trading volume was also limited.
Today, with more than 1,000 listed companies and very active trading in both markets, China’s
stock market plays an essential role in financing companies in various industries and regions in
China. Further, it plays an increasing role in reforming the corporate governance of listed
companies and provides an example for other firms to follow. The stock markets, along with
commercial banks, insurance companies, and other financial markets and institutions, have formed
an integrated financial system to serve the rapid growing Chinese economy.
In spite of the important and positive role of the stock market in China’s economic development, it
is imperative to keep in mind its shortcomings. Among others, I listed several prominent problems
such as lack of enforceable regulations and laws governing the stock markets, segregation of
different shares and non-trading of state-owned and legal-person shares, over-speculation in the
market, and the need to strengthen the role of the stock market in improving the corporate
governance of listed companies. If China can address these problems in an effective way, her stock
market will continue to play its important role in raising capital and help reforming the governance
of companies. It is also quite possible that China’s stock market will become one of the largest and
most efficient markets in the world.
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Literature:
Annals of Chinese Securities Regulatory Commission, various issues, Beijing, PRC.
Annals of Shanghai Stock Exchange, Shanghai, PRC.
Annals of Shenzhen Stock Exchange, Shenzhen, PRC.
Huang, Samuel, and Frank Song, 2002, “The Capital Structure of China’s Listed Companies”,
Working paper, School of Economics and Finance, University of Hong Kong.
Wang, Guogang, 1999, “China’s Finance in 21 Centuries”, Social Science Literature Publisher,
Beijing, PRC.
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Table 1: Summary for Securities Market
1992 1993 1994 1995 1996 1997 1998 1999 2000
Number of listed Companies (A&B Share) 53 182 291 323 530 745 851 949 1088
Number of Listed Companies
(B Share)
18 41 58 70 85 101 106 108 114
Number of Listed Companies
(H Share)
6 15 18 25 42 43 46 52
Total Market Shares (Billion Shares) 6.887 38.773 68.454 84.842 121.954 194.267 252.679 308.895 379.171
Negotiable Shares (Billion Shares) 2.118 10.788 22.604 30.146 42.985 67.144 86.196 107.965 135.426
Total Market (billion yuan) 104.813 353.101 369.061 347.428 984.238 1752.924 1950.564 2647.117 4809.094
Negotiable Market Capitalization (Billion Yuan) 86.162 96.889 93.822 286.703 520.442 574.559 821.397 1608.752
Trade Volume (million shares) 3795.39 23422.17 201333.91 70547.06 253314.06 256079.12 215411.00 293238.88 475838.21
Total Turnover (Billion yuan) 68.125 366.702 812.763 403.647 2133.216 3072.184 2354.425 3131.96 6082.665
Shanghai Stock Exchange Composite Index 780.39 833.8 647.87 555.29 917.01 1194.10 1146.70 1366.58 2073.48
Shenzhen Exchange Composite Index 241.2 238.27 140.63 113.24 327.45 381.29 343.85 402.18 635.731
P/E, Shanghai 42.48 23.45 15.70 31.32 39.86 34.38 38.13 59.14
P/E, Shenzhen 42.69 10.28 9.46 35.42 41.24 32.31 37.56 58.75
Turnover Ratio (%), Shanghai 341.00 787.00 519.41 760.05 534.99 355.3 421.55 504.07
Turnover Ratio (%), Shenzhen 265.45 324.44 691.79 309.56 949.68 662.32 411.14 371.61 396.47
Number of Investors (10000) 216.65 777.86 1058.98 1242.47 2307.23 3333.33 3911.13 4481.19 5801.13
Source: The Chinese Securities and Futures Statistical Year Book, 2001
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Table 2: Ratio of Market Capitalization to GDP and Domestic Raised Capital to Newly increased Fixed Asset.
Unit: 100,000,000 yuan
GDP Market
Capitalization
% Negotiable
Market
Capitalization
% Newly
Increased
Fixed
Asset
Domestic
Raised
Capital
%
1992 26638.1 1048.13 3.93 8317.0 50 .06
1993 34634.4 3531.01 10.20 12980.0 276.41 2.13
1994 46759.4 3690.62 7.89 964.82 2.06 16856.3 99.78 .59
1995 58478.1 3474.00 5.94 937.94 1.60 20300.5 85.51 .42
1996 67884.6 9842.37 14.50 2867.03 4.22 23336.1 294.34 1.26
1997 74772.8 17529.23 23.44 5204.43 6.96 25154.2 856.06 3.40
1998 79552.8 19505.64 24.52 5745.59 7.22 27630.8 778.02 2.82
1999 82054.0 26471.17 32.26 8213.97 10.01 29475.2 896.83 3.04
2000 89404.0 48090.94 53.79 16087.52 17.99 NA 1498.52 NA
Source: The Chinese Securities and Futures Statistical Year Book, 2001
Table 3, Ratio of Domestic Raised Capital in Stock Market to Account of Loan in Banks
Unit: 100,000,000 yuan
Domestic Raised
Capital
Amount of Loan
of Bank
% Domestic Raised
Capital
Amount of Loan
of State-owned
Bank
%
1993 276.41 6335.4 4.36 276.41 4845.61 5.70
1994 99.78 7216.62 1.38 99.78 5161 1.93
1995 85.51 9339.82 0.92 85.51 6915.45 1.24
1996 294.34 10683.33 2.76 294.34 7937.75 3.71
1997 856.06 10712.47 7.99 856.06 8149.96 10.5
0
1998 778.02 11490.92 6.77 778.02 9100.39 8.55
1999 896.83 10846.36 8.27 896.83 8742.71 10.2
6
2000 1498.52 13346.61 11.23 1498.52 10074.02 14.8
8
Source: The Chinese Securities and Futures Statistical Year Book, 2001
23
Table 4: Distribution of Listed Firm Across China Unit: Number of Firms
Shanghai Shenzhen Total (percent)East 343 268 56.16%Central 110 126 21.69%West 119 122 22.15%Total 572 516 100Source: The Chinese Securities and Futures Statistical Year Book, 2001
Where East region includes Liaoning, Beijing, Tianjin, Shandong, Jiangsu, Shanghai, Zhejiang,
Fujian, Guangdong and Hainan, totally ten Provinces and Municipals; Central Region
includes Heilongjiang, Jilin, Hebei, Henan, Anhui, Jiangxi, Hubei, Hunan, eight provinces;
West region includes Inner Mongolia, Xinjiang, Ningxia, Shanxi, Shannxi, Gansu, Qinghai,
Tibet, Sichun, Guizhou, Yunnan, Chongqing, Guangxi, thirteen provinces, autonomous
region and municipals.
Table 5: Distribution of Listed Firms Across Industry Unit: Number of Firms
Total (%) Shanghai Shenzhen
Agriculture 2.48% 16 11
Mining 1.28 5 9
Manufacturing 61.03 339 325
Electricity, Gas and Water Supply 3.68 22 18
Transportation & Storage 3.86 24 18
Construction & Real Estate 4.78 25 27
Wholesale & Retail 9.74 64 42
Other Industry 13.14 77 66
Total 100% 572 516
Source: The Chinese Securities and Futures Statistical Year Book, 2001
24
Table 6, Changes of Listed Companies by Shares Categories in Recent Years (National)
Unit: Number of Companies
Year 1994 1995 1996 1997 1998 1999 2000
Only A Shares 227 242 431 627 727 822 955
A & H Shares 6 11 14 17 18 19 19
A & B Shares 54 58 69 76 80 82 86
Only B Shares 4 12 16 25 26 26 28
Total 291 323 530 745 851 949 1088
Total of A Shares 287 311 514 720 825 923 1060
Total of B Shares 58 70 85 101 106 108 114
Source: The Chinese Securities and Futures Statistical Year Book, 2001
Table 7, Comparison of the Number of Listed Companies in Major Stock Markets
Unit: Number of Companies
Year China Taiwan
New
York Tokyo Korea London Hong Kong Thailand
Singapor
e
1992 53 256 2089 1651 688 1878 413 320 319
1993 183 285 2362 1667 693 1927 477 269 338
1994 291 313 2570 1689 699 2070 529 289 362
1995 323 347 2675 1714 721 2078 542 416 384
1996 530 382 2839 1749 741 2136 575 454 402
* 1997 745 404 2626 1865 776 2513 658 431 334
* 1998 851 437 2669 1890 748 2423 680 418 349
* 1999 949 462 2592 1932 712 2791 708 392 317
2000 1088 531 2468 2096 702 2929 790 381 388
Source: The Chinese Securities and Futures Statistical Year Book, 2001
Table 8, Comparison of Trading Values in Major Stock Markets Unit: US $ Billion
Year China Taiwan New York Tokyo Korea London
Hong
Kong Thailand Singapore
1992 8.21 247.00 1745.00 482.00 115.00 407.00 91.00 73.00 18.00
1993 44.19 353.00 2260.00 793.00 211.00 843.00 157.00 86.00 80.00
1994 97.94 737.00 2454.00 859.00 287.00 930.00 147.00 84.00 81.00
1995 48.63 390.00 3083.00 878.00 186.00 1025.00 107.00 62.00 59.00
1996 257.05 477.00 3347.00 865.00 157.00 838.00 162.00 49.00 52.00
25
* 1997 370.14 1308.62 5777.61 896.06 170.82 1989.49 453.67 24.60 74.15
*1998 283.67 859.99 7317.95 750.83 145.06 2877.89 206.15 20.98 58.51
1999 377.35 913.62 8945.21 1675.65 733.42 3399.26 230.03 37.25 107.41
Source: The Chinese Securities and Futures Statistical Year Book, 2001
26
Table 10, Comparison of P/E Ratios in Major Stock Markets
Year Shanghai Shenzhen Taiwan New York Tokyo Korea London Hong Kong Thailand Singapore 1992 - - 22.90 22.70 36.70 10.80 17.50 13.10 16.30 19.501993 42.48 42.69 39.70 23.40 64.90 16.00 24.80 21.60 26.10 37.301994 23.45 10.28 33.50 29.70 79.50 21.80 17.40 10.70 19.50 26.201995 15.70 9.46 21.30 35.30 86.50 16.00 15.60 11.40 19.80 24.001996 31.32 35.42 29.00 26.30 79.30 16.00 15.90 16.70 12.00 21.701997 39.86 41.24 27.00 26.40 37.60 NA 19.20 12.10 6.60 15.201998 34.38 32.31 NA 37.20 103.10 27.80 23.30 10.70 10.40 19.001999 38.13 37.56 47.70 31.30 NA 34.60 30.50 26.73 14.70 99.20
Source: The Chinese Securities and Futures Statistical Year Book, 2001
Table 11, Investors Summary in 2000
Panel A: A Shares Investors Summary Total Shanghai ShenzhenTotal Investors (Unit: 10000) 5773.71 2943.32 2830.39Legal Persons (Unit: 10000) 26.04 12.12 13.92Individual Persons (Unit: 10000) 5747.67 2931.2 2816.47Ratio of Legal Personal Investors to Total Number of Investors 99.54% 99.58% 99.51%
Panel B: B Shares Investors Summary Total Shanghai ShenzhenTotal Investors (Unit: 10000) 27.43 14.52 12.91Legal Persons(Unit: 10000) 1.66 0.83 0.83Individual Persons (Unit: 10000) 25.77 13.69 12.08Ratio of Legal Personal Investors to Total Number of Investors 93.94% 94.28% 93.57%
Source: The Chinese Securities and Futures Statistical Year Book, 2001
Table 13, Summary Statistics of Monthly Turnover rate
Year Mean Std. Dev. Min Max1992199219941995199619971998199920002001
.1704958 .0638057 .0770335 .2908852
.2836436 .1154038 .1334102 .4807411
.4188635 .4055977 .1160487 1.346954
.2127732 .1352032 .0559316 .4987576
.5471429 .3420382 .0416881 1.091829
.3947013 .1995625 .2002398 .7707209
.2266187 .0828892 .1127351 .4066433
.2466301 .2161043 .0362618 .837316
.3247193 .12354 .1454418 .5859943
.1686583 .0754038 .0937296 .3292862
Source: Shenzhen GTA Database
Table 14, Summary Statistics of Monthly Standard Deviation
Year Mean Std. Dev. Min Max1992199219941995199619971998199920002001
.0279075 .0281862 .004778 .1092801
.0234108 .0084172 .0092082 .0354255
.0335041 .0228274 .0177399 .0933681
.0198245 .0184043 .0079245 .0752475
.0205525 .0095214 .0105673 .0472055
.0188753 .0105793 .007146 .0387938
.0108944 .0048386 .006458 .0243055
.0142647 .0070651 .0074894 .0290173
.0113791 .0064281 .0050314 .0287644
.0118753 .0063323 .0052002 .0300744Source: Shenzhen GTA DatabaseRemarks: Monthly Standard Deviation is defined as the standard deviation of daily return during a month, where return is the equally weighted average return for all the A&B shares in China’s two Stock markets
Source: The Chinese Securities and Futures Statistical Year Book, 2001
Source: The Chinese Securities and Futures Statistical Year Book, 2001
31