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The Crucible of Chinese Capital

An in-depth exploration of China's financial powerhouse, its historical evolution, market structure, and global significance.

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Overview

Global Financial Powerhouse

The Shanghai Stock Exchange (SSE), located in Shanghai, China, stands as one of the three independent stock exchanges in mainland China, alongside the Beijing and Shenzhen Stock Exchanges. As of July 2024, the SSE is recognized as the world's third-largest stock market by market capitalization, surpassing $6 trillion, and holds the distinction of being Asia's largest stock exchange.[3][4]

Unique Market Dynamics

Distinct from the Hong Kong Stock Exchange, the SSE operates with significant influence from the central government and is not entirely open to foreign investors. This is primarily due to the capital account controls implemented by Chinese mainland authorities.[5][6] These controls shape the investment landscape and regulatory environment within the exchange.

Foundational Principles

The modern Shanghai Stock Exchange was formally re-established on November 26, 1990, commencing operations on December 19 of the same year. It functions as a non-profit organization, operating under the direct administration and oversight of the China Securities Regulatory Commission (CSRC), the primary regulatory body for securities in China.[7]

History

Early Beginnings (1860s-1940s)

The genesis of securities trading in Shanghai can be traced back to the late 1860s, following the establishment of the International Settlement. The first official share list emerged in June 1866. By the 1880s and 1890s, foreign businessmen founded the "Shanghai Sharebrokers' Association," which was later renamed the "Shanghai Stock Exchange" in 1904 after registering in Hong Kong. The market initially saw banks dominating private shares, but industrial shares gained prominence after the Treaty of Shimonoseki in 1895, which allowed foreign factories in treaty ports. By the 1930s, Shanghai had become a pivotal financial hub in the Far East, facilitating trade in stocks, debentures, government bonds, and futures for both Chinese and foreign investors. However, this era concluded abruptly with the Japanese occupation of the Shanghai International Settlement on December 8, 1941, leading to the exchange's closure in 1949 after the Communist revolution.[7]

Re-establishment & Modern Era (1978-Present)

Following the end of the Cultural Revolution and Deng Xiaoping's ascent to power in 1978, China embarked on a period of economic reform and opening up. This led to the re-establishment of the Shanghai Stock Exchange on November 26, 1990. Initially operating under municipal control as an "experimental point," the SSE, along with the Shenzhen Stock Exchange, was brought under central government control by the China Securities Regulatory Commission (CSRC) in 1997, affirming its legitimate role in the socialist market economy.[8] A significant modern development was the launch of the STAR Market in 2019, specifically designed for technology-related companies, positioning it as a rival to global tech-focused exchanges.[9][10][11][12]

  • 1866: The first share list appeared in June, marking the beginning of securities trading in Shanghai.
  • 1891: The "Shanghai Sharebrokers Association" was established, China's first stock exchange.
  • 1904: Renamed to "Shanghai Stock Exchange" after registration in Hong Kong.
  • 1941: Market closed on December 5 due to Japanese occupation of Shanghai.
  • 1949: Final closure after the Communist revolution.
  • 1978: China re-opened to the outside world under Deng Xiaoping's leadership.
  • 1981: Trading in treasury bonds resumed.
  • 1984: Company stocks and corporate bonds emerged in Shanghai.
  • 1990: The present Shanghai Stock Exchange re-opened on November 26 and began operation on December 19.[7]
  • 1992: Deng Xiaoping's Southern Tour bolstered China's capital market and the two stock exchanges.[13][14]
  • 1997: SSE brought under direct management of the China Securities Regulatory Commission (CSRC).[15]
  • 2001โ€“2005: A four-year market slump, with a ban on new IPOs in April 2005 to address market value decline.
  • 2006: IPO ban lifted; Industrial and Commercial Bank of China (ICBC) launched the world's second-largest IPO.[16]
  • 2007โ€“2008: A "stock market frenzy" saw the Shanghai Composite Index reach an all-time high of 6,124.044 points on October 16, 2007, before ending 2008 down a record 65% due to the global economic crisis.[17][18][19][20]
  • 2010: Agricultural Bank of China completed the world's largest IPO at the time, valued at US$22.1 billion.[21][22]
  • 2015: Experienced significant stock value variations, including a -30% fall in Juneโ€“July.
  • 2019: Launched the STAR Market for technology-related companies.

Structure

Traded Securities

The Shanghai Stock Exchange facilitates trading in three primary categories of securities: stocks, bonds, and funds. Within the bond market, investors can engage with treasury bonds (T-bonds), corporate bonds, and convertible corporate bonds. The SSE's T-bond market is particularly notable for its high activity within China, reflecting its central role in the nation's fixed-income landscape.

A and B Shares

The SSE distinguishes between two types of stocks: "A" shares and "B" shares. "A" shares are denominated and traded in the local Renminbi (CNY) currency, while "B" shares are quoted in U.S. dollars. Historically, "A" shares were restricted to domestic investors, and "B" shares were accessible to both domestic (since 2001) and foreign investors. However, regulatory reforms in December 2002 introduced the Qualified Foreign Institutional Investor (QFII) program in 2003, allowing foreign institutional investors, with certain limitations, to trade in "A" shares. As of April 2012, 98 foreign institutional investors were approved under the QFII program, with quotas increasing from US$30 billion to US$80 billion.[23][24] Discussions have also explored the eventual merger of these two share types.[25]

Trading

Daily Schedule

The Shanghai Stock Exchange operates for trading from Monday to Friday, with sessions running from 09:15 to 15:00 local time. The morning session commences with a centralized competitive pricing period from 09:15 to 09:25, followed by consecutive bidding from 09:30 to 11:30. The afternoon session continues with consecutive bidding from 13:00 to 14:57. A final centralized competitive pricing period occurs from 14:57 to 15:00, concluding with block trading from 15:00 to 15:30.[26]

Market Closure

The SSE observes closures on Saturdays, Sundays, and other public holidays as officially announced by the exchange. These scheduled non-trading days ensure market stability and align with national observances.

Indices

SSE Composite Index

The SSE Composite Index, often referred to as the Shanghai Composite, serves as the most widely utilized benchmark for assessing the overall performance of the Shanghai Stock Exchange. This index encompasses all listed "A" shares and "B" shares on the exchange. Its base day is December 19, 1990, with the base period defined by the total market capitalization of all stocks on that day, and a base value of 100. The index was officially launched on July 15, 1991, and by the end of 2006, it had reached 2,675.47 points.

Other Key Indices

Beyond the comprehensive SSE Composite Index, the Shanghai Stock Exchange also features other significant indices that track specific segments of the market. These include the SSE 50 Index, which monitors the performance of the 50 largest and most liquid A-share companies listed on the SSE, and the SSE 180 Index, which broadens this scope to include 180 prominent companies.

Listings

Eligibility Criteria

Companies seeking to list shares on the Shanghai Stock Exchange must adhere to stringent criteria outlined in the Securities Law and Company Law of the People's Republic of China. Key requirements include:

  • Public issuance of shares must receive approval from the State Council Securities Management Department.
  • A minimum total share capital of RMB 30 million.
  • A track record of profitability for at least three consecutive years. This also applies to former state-owned enterprises (SOEs) reincorporating.
  • A minimum of 1,000 shareholders holding values exceeding RMB 1,000.
  • Publicly offered shares must constitute more than 25% of the company's total share capital. For companies with total share capital exceeding RMB 400 million, this ratio is reduced to more than 15%.
  • Absence of major illegal activities or false accounting records within the preceding three years.

Additional conditions may be stipulated by the State Council.

Special Considerations

China generally prioritizes domestic firms for listing on its stock exchanges, a policy also observed in countries like India. However, there have been considerations, such as in 2010, to potentially open up capital markets to foreign firms. Furthermore, specific listing conditions are separately defined by the State Council for high and new technology companies, reflecting a tailored approach to fostering innovation and growth in strategic sectors.

Source: Shanghai Stock Exchange (market values in RMB/Chinese Yuan). Data arranged by market value. Updated on Aug 27 2020.[27]

  1. Kweichow Moutai (2,174 billion)
  2. Industrial and Commercial Bank of China (1,339 billion)
  3. Agricultural Bank of China (1,027 billion)
  4. China Life (897 billion)
  5. Ping An Insurance (829 billion)
  6. China Merchants Bank (761 billion)
  7. PetroChina (717 billion)
  8. Bank of China (691 billion)
  9. Haitian Flavouring & Food (593 billion)
  10. Hengrui Medicine (499 billion)

Global

International Partnerships

The Shanghai Stock Exchange extends its influence beyond China's borders through strategic international partnerships. Notably, the SSE holds a 40% stake in the Pakistan Stock Exchange (PSX). This collaboration is further enhanced by the China Connect Interface, which integrates PSX with China's stock market, facilitating easier access for Chinese investors into Pakistan's capital markets.[28] Additionally, the Shanghai Stock Exchange is a part owner of the Astana International Financial Centre, demonstrating its commitment to fostering global financial connectivity and development.[28]

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References

References

  1.  MSNBC รขย€ย“ China shares tumble as panic spreads รขย€ย“ retrieved on June 4, 2007.
  2.  Shanghai Stock Exchange Trading Schedule
A full list of references for this article are available at the Shanghai Stock Exchange Wikipedia page

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Disclaimer

Important Notice

This page was generated by an Artificial Intelligence and is intended for informational and educational purposes only. The content is based on a snapshot of publicly available data from Wikipedia and may not be entirely accurate, complete, or up-to-date.

This is not financial advice. The information provided on this website is for educational and informational purposes only and should not be considered as investment advice, a recommendation to buy or sell any securities, or a solicitation for any financial product or service. Always consult with a qualified financial professional, investment advisor, or regulatory expert before making any investment decisions or engaging in financial transactions. Investing in stock markets involves inherent risks, including the potential loss of principal. The financial markets are complex and subject to rapid changes, and past performance is not indicative of future results.

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