Chinese alphabet soup
Recognition and protection of shareholders’ rights has rarely been a top priority for senior management of emerging-market corporates. The lack of any serious attention to shareholder rights in China is further hindered by an alphabet soup mix of shareholder classes – each with its own complex set of regulations. Although many emerging equity markets operate under foreign ownership restrictions and two-tiered share ownership structures, the Chinese system is perhaps the most elaborate. More important, proposals to attempt radical reform of the regulatory framework – such as the elimination of an entire class of shares – might hit foreign equity holders with an immediate loss, thus injecting into the market even more uncertainty about the near-term outlook for increased foreign participation. Here are some of the most commonly used market terms.
A-shares: By far the largest class of shares, which are listed on one of the two mainland China stock exchanges, Shanghai or Shenzhen. Trading and settlement is denominated in renminbi, and is restricted to Chinese domestic investors and qualified foreign institutional investors (QFIIs). With 1,400 corporates listed, foreign analysts have criticized this market in particular as little more than a pool of whole uninvestable firms run by communist managers and presenting little, if any, value for investors.