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    The Development of China's Stock Markets The Development of China's Stock Markets Document 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: fmsong@econ.hku.hk 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. 1
    • 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 2
    • early shareholding companies encouraged more enterprises to follow, and shareholding became a 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 2 China. 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. 3
    • 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 4
    • same period, the number of B-shares increased from 18 to 114. H-shares – shares listed on the 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, 5
    • 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. 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. 7
    • e. Staff shares refer to staff shares issued by private placement of companies and yet not listed at the report time. 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 8
    • 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 “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 9
    • (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 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. 10
    • 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 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 11
    • 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 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 12
    • 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 Markets 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 13
    • 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 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. 14
    • 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 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 15
    • 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. 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 16
    • 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 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 17
    • 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 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 18
    • 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 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 19
    • 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. 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 20
    • 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. 21
    • 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. 22
    • 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 18 41 58 70 85 101 106 108 114 (B Share) Number of Listed Companies 6 15 18 25 42 43 46 52 (H Share) 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 23
    • Table 2: Ratio of Market Capitalization to GDP and Domestic Raised Capital to Newly increased Fixed Asset. Unit: 100,000,000 yuan GDP Market % Negotiable % Newly Domestic % Capitalization Market Increased Raised Capitalization Fixed Capital Asset 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 Amount of Loan % Domestic Raised Amount of Loan % Capital of Bank Capital 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 10.50 1998 778.02 11490.92 6.77 778.02 9100.39 8.55 1999 896.83 10846.36 8.27 896.83 8742.71 10.26 2000 1498.52 13346.61 11.23 1498.52 10074.02 14.88 Source: The Chinese Securities and Futures Statistical Year Book, 2001 24
    • 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 572 516 100 Source: 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 25
    • 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 Singapore 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                     * 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 19.50 1993 42.48 42.69 39.70 23.40 64.90 16.00 24.80 21.60 26.10 37.30 1994 23.45 10.28 33.50 29.70 79.50 21.80 17.40 10.70 19.50 26.20 1995 15.70 9.46 21.30 35.30 86.50 16.00 15.60 11.40 19.80 24.00 1996 31.32 35.42 29.00 26.30 79.30 16.00 15.90 16.70 12.00 21.70 1997 39.86 41.24 27.00 26.40 37.60 NA 19.20 12.10 6.60 15.20 1998 34.38 32.31 NA 37.20 103.10 27.80 23.30 10.70 10.40 19.00 1999 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 Shenzhen Total Investors (Unit: 10000) 5773.71 2943.32 2830.39 Legal Persons (Unit: 10000) 26.04 12.12 13.92 Individual Persons (Unit: 10000) 5747.67 2931.2 2816.47 Ratio of Legal Personal Investors to Total Number of Investors 99.54% 99.58% 99.51% Panel B: B Shares Investors Summary   Total Shanghai Shenzhen Total Investors (Unit: 10000) 27.43 14.52 12.91 Legal Persons(Unit: 10000) 1.66 0.83 0.83 Individual Persons (Unit: 10000) 25.77 13.69 12.08 Ratio 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 Max 1992 .1704958 .0638057 .0770335 .2908852 1992 .2836436 .1154038 .1334102 .4807411 1994 .4188635 .4055977 .1160487 1.346954 1995 .2127732 .1352032 .0559316 .4987576 1996 .5471429 .3420382 .0416881 1.091829 1997 .3947013 .1995625 .2002398 .7707209 1998 .2266187 .0828892 .1127351 .4066433 1999 .2466301 .2161043 .0362618 .837316 2000 .3247193 .12354 .1454418 .5859943 2001 .1686583 .0754038 .0937296 .3292862 Source: Shenzhen GTA Database Table 14, Summary Statistics of Monthly Standard Deviation Year Mean Std. Dev. Min Max 1992 .0279075 .0281862 .004778 .1092801 1992 .0234108 .0084172 .0092082 .0354255 1994 .0335041 .0228274 .0177399 .0933681 1995 .0198245 .0184043 .0079245 .0752475 1996 .0205525 .0095214 .0105673 .0472055 1997 .0188753 .0105793 .007146 .0387938 1998 .0108944 .0048386 .006458 .0243055 1999 .0142647 .0070651 .0074894 .0290173 2000 .0113791 .0064281 .0050314 .0287644 2001 .0118753 .0063323 .0052002 .0300744 Source: Shenzhen GTA Database Remarks: 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 29
    • Figure 1: Market Capitalization / GDP Ratio 1993-2000 9% .7 60.00% 53 2% 2% .8 4% 40.00% 31 .5 .4 24 % 23 50 0% . % 14 20.00% % .2 94 89 10 5. 7. 0.00% 1993 1994 1995 1996 1997 1998 1999 2000 Source: The Chinese Securities and Futures Statistical Year Book, 2001 Figure 2: Shareholder Structure of Listed Companies Year 2000 Private Placement of Legal Person's Staff Share Others 6% 1% 1% Foreign Legal Person's A Share 1% 26% B Share Sponsor's Legal 5% Person's 19% H Share 4% State-owned 37% Source: The Chinese Securities and Futures Statistical Year Book, 2001 30