CHINA'S SECURITIES EXPERIMENT: THE CHALLENGE OF GLOBALIZATION
II. Legal Framework Under National Laws
D. "Chinese Classification" of Stocks
Even though both the Corporation Law and Securities Law
is curiously silent on the classification of corporate stock,
it remains the most distinctive feature of Chinese securities
markets: the stock, in addition to its universal classification
as common stock, preferred stock, etc, also is defined by
the status and nationality of the shareholders. Roughly,
there is four types of shares: State shares, Legal person
shares, individual shares, and foreign capital shares. The
basic rational under the classification is to control the
transferability of different types of shares: State shares
and legal person shares are theoretically nontransferable,
foreign shares may only be traded in a special, closed market,
and individual shares may be transferred only between Chinese
State Shares (Guo Jia Gu) State shares refers to shares
held by governmental agencies or authorized institutions
on behalf of the State. According to relevant regulations,
it shall include: (1) The shares converted from the net
assets of SOEs which have been transformed into joint stack
companies. (2) Shares initially issued by companies and
purchased by the governmental departments investing on behalf
of the State. (3) Shares initially issued by companies and
purchased by the investment companies, assets management
companies, and economic entity companies authorized to make
investment on behalf of the State. State shares are not
allowed to be traded on an open market.
Legal Person Shares (Fa Ren Gu) Legal person shares refer
to shares of a joint stock company owned by another company
or institution with a legal person status. The legal person
shares can be indirectly hold by the State if the shareholders
are State-owned companies. Basically, there are four types
of owners for legal personal shares, namely, state-owned
legal person shares, collective enterprise legal person
shares, private enterprise legal person shares, foreign
invested enterprise legal person shares, and institutional
legal person shares. The transfer and trading of legal person
shares are also restricted.
Individual Shares or A Shares(Ge Ren Gu) Individual shares,
with an official recognized nick name of "A shares",
refer to shares that may only be owned by Chinese citizens.
A shares has the full function born by classic stock, and
it can be freely traded and transferred in domestic markets.
Foreign Capital Shares (Wai Zi Gu) Foreign capital shares
include B shares and overseas listing shares. B shares are
shares which are offered exclusively to foreign investors.
Like other shares, they are denominated in RMB, but Chinese
citizens are not permitted to own or trade in B Shares.
Issuing B shares is another channel for Chinese companies
to raise foreign capitals. Overseas listing shares are shares
issued by Chinese companies listed on securities markets
outside mainland China. Among which are H shares, N shares
and L shares:
H shares are offered by Chinese companies listed on Hong
Kong Stock Exchange. They are subscribed for and traded
in Hong Kong Dollars, and denominated in RMB. They can only
be purchased and traded by Hong Kong local investors or
N shares are issued to foreign investors on US stock exchanges.
They are denominated in RMB and subscribed for in US dollar.
Dividends are declared in RMB but paid in US dollars. In
fact, N shares are not traded directly on stock exchanges
but are issued by way of ADRs (American Depository Receipts).
L shares are issued on London Stock Exchange according a
memorandum of understanding signed between U.K and China's
relevant authorities on October 7, 1996.