Topics Covered China's Financial Markets Stock markets in China before 949 Stock markets in China since 980 Reform of the Split-share Structure Lecture 5 China's Stock Markets Stock Market in China Before 949 5.I Stock markets in China started in Shanghai since 1860s among western Before 949 nance with stock, stock transactions became hanghai Security Brokers' Consortia established in 891 ased in 9 4 First stock exchange established in Beijing in 8 Stock Market in China Before Stock Market in China Before l949 l949 Second boom came up in the 1930s and established in July Ist1920: Shanghai HuaShang but high inflation during the war led to th Stock Exchange was established in 1921 GuoMin Dang Government considered Tianjin Security and Goods Exchange was reestablishing the stock exchanges after 1945. established in 921 and Shanghai Stock Exchange Limited was Till beginning of 1921 established in 946 200 stock exchanges in China, of which more ge reestablished in 1948 than 150 were in Shanghai but soon failed in high inflation. Over speculation collapsed in the end of 192I only 6 stock exchanges survived
1 China’s Financial Markets By Zhang Xiaorong Lecture 5: China’s Stock Markets 5-1 Topics Covered — Stock Markets in China Before 1949 — Stock Markets in China since 1980 — Reform of the Split-share Structure 5-2 5.1 Stock Markets in China Before 1949 5-3 5-4 Stock Market in China Before 1949 — Earliest transactions of international stocks started in Shanghai since 1860s among western merchants. — Since 1880s, private-owned firms began to finance with stock,stock transactions became popular. — Shanghai Security Brokers’ Consortia established in1891. — Security Trade Law released in 1914. — First stock exchange established in Beijing in 1918. 5-5 Stock Market in China Before 1949 — Shanghai Security and Goods Exchange was established in July 1st 1920; Shanghai HuaShang Stock Exchange was established in 1921. — Tianjin Security and Goods Exchange was established in 1921. — Till beginning of 1921, there were more than 200 stock exchanges in China, of which more than 150 were in Shanghai. — Over speculation collapsed in the end of 1921, only 6 stock exchanges survived. 5-6 Stock Market in China Before 1949 — Second boom came up in the 1930s and 1940s, but high inflation during the war led to the bust — GuoMinDang Government considered reestablishing the stock exchanges after 1945, and Shanghai Stock Exchange Limited was established in 1946. — Tianjin Security Exchange reestablished in 1948, but soon failed in high inflation
Stock Market in China Before Stock Market in China Before l949 1949 1891 and exchange The second stock exchange was established in Both exchanges stopped the transaction in Ch tw wege merged into HK Stock Exchange Most of the transactions were manipulated by ple shares in 1872-1910(Qing Era) the banks in Shanghai. Stock Market in China Before 1949 5.2 Stock Markets in China Since 980 Sample shares in the Chinese Republic( 1911-1949) Stock Market from 950 to 980 Shanghai Stock Exchange was closed in June 5.2 Stock Markets in China 1949 Since 980 Tianjin Stock Exchange was reestablished in Beijing Stock Exchange was established in Feb. 950 Transactions in both exchanges became thinner
2 5-7 Stock Market in China Before 1949 — HK Stock Trading Association was established in 1891, and changed the name to HK stock exchange in 1914. — The second stock exchange was established in 1921. — Both exchanges stopped the transaction in 1941. — The two were merged into HK Stock Exchange Co. Ltd. in 1947. — Market size was small compared with Shanghai. — Most of the transactions were manipulated by the banks in Shanghai. Sample shares in 1872-1910 (Qing Era) Stock Market in China Before 1949 5-8 5-9 Stock Market in China Before 1949 Sample shares in the Chinese Republic (1911-1949) 5.2 Stock Markets in China Since1980 5-10 5.2 Stock Markets in China Since1980 5-11 5-12 Stock Market from 1950 to 1980 — Shanghai Stock Exchange was closed in June 1949. — Tianjin Stock Exchange was reestablished in June 1949, which became the first stock exchange in PRC. — Beijing Stock Exchange was established in Feb.1950. — Transactions in both exchanges became thinner with the stabilization of finance and commodity prices
Stock Market from 950 to 980 Stock Markets in China since 980 In 1952, Tianjin Stock Exchange was merged to Early Stage Tianjin Investment company. 980-1990, experimental period Beijing Stock Exchange was closed From 1950s to 1970s, only the gove could issue bonds, which paid interest but were not tradable Stock market"disappeared" in Chin Third Stage 1999-2008, development under regulation Fourth Stage 2009-present, more rational market after the Early Stage: 1980-1990 Early Stage: 1980-1990 Earliest Stocks Issued issue stocks in early 1980s Shanghai raised equity capital of 5 issued at the face value with ssued stocks with Shenzhen secur Byl990, there otally 8 stocks traded in No underwriter involved: limited secondary market Example: On July 25th 1984, Beijing Tianqi hmag89m助R hares at raised capital of 3 million RMB. In Dec. 1984. Feile Acoustics in Shanghai m issued 10,000 shares at RMB 50 to the public. Early Stage: 1980-1990 Early Stage: 1980-1990 86. stocks of Feile Acoustics and Shenzhen Security Company was established based ns in September 1987 with the from PB Byl990, there were 5 stocks traded in Shenzhen with rading(September 26th, 1984)for Feile and Yanzhong in ICBC ing
3 5-13 Stock Market from 1950 to 1980 — In 1952, Tianjin Stock Exchange was merged to Tianjin Investment company. — Beijing Stock Exchange was closed. — From 1950s to 1970s, only the government could issue bonds, which paid interest but were not tradable. — Stock market “disappeared” in China. 5-14 Stock Markets in China since1980 — Early Stage ◦ 1980~1990, experimental period — Second Stage ◦ 1991~1998, rapid development without regulation — Third Stage ◦ 1999~2008, development under regulation — Fourth Stage ◦ 2009-present, more rational market after the global financial crisis Early Stage: 1980~1990 — Earliest Stocks Issued ◦ Some small-size SOEs and collective firms began to issue stocks in early 1980s ◦ The shares were issued at the face value with promised dividends and maturity to the employees and local residents ◦ No underwriter involved; limited secondary market ◦ Example:On July 25th 1984,BeijingTianqiao Company first publicly issued shares at RMB 100 and raised capital of 3 million RMB. ◦ Example: In Dec. 1984, FeileAcoustics in Shanghai issued 10,000 shares at RMB 50 to the public. 5-15 5-16 Early Stage: 1980~1990 — Earliest Stocks Issued ◦ In January 1985, Yanzhong Industrial Company in Shanghai raised equity capital of 5 millionYuan. ◦ OnApril 11th 1988, Shenzhen Bank of Development issued stocks with Shenzhen Security Company ◦ By1990,there were totally 8 stocks traded in Shanghai Equity Financing 1980-1990 in China (in Bln RMB) 1980-1987 1988 1989 1990 Total 1 2.5 0.66 0.43 4.59 5-17 Early Stage: 1980~1990 — Stock Trading and Security Companies ◦ From Sept.26th 1986,stocks of FeileAcoustics and Yanzhong became traded (OTC) in ICBC Jingan Security Department. ◦ Shenzhen Security Company was established based on 12 financial institutions in September1987 with the approval from PBC ◦ In 1988,three security firms were established in Shanghai. ◦ By1990,there were 5 stocks traded in Shenzhen with 12 security companies. ◦ The OTC market for stock trading had been established. . 5-18 Early Stage: 1980~1990 The first day ofTrading (September 26th,1984) for Feile andYanzhong in ICBC Jingan Security Department
Early Stage: 1980-1990 Early Stage: 1980-1990 上Dmx Ding gave Mr John Phelan, president of stock as a gift Second Stage: 1991-1998 Second Stage: 991-1998 Shanghai Stock Exchange(SSE) was established Dec. 9 SATQ System of Automated Trading and uoting) was adopted in Dec 1990 omputerized trading system, automatic matching of buyers and sellers according to In Oct. 992, CSRC was established In April 1993, Tentative Rules on Security Issuing and Transaction"was released Second stage: 1991-1998 Second stage: 1991-1998 No of a shares listed set up in 1992, traded in US dollars on sse and in hk dollars on szse. Individuals and legal persons in the PRC were only allowed to buy and sell a shares, while foreigners and residents of Hong Kong, macau, and Taiwan, could only buy and sell B shares. From February 19th 2001, B shares market became open to PRC residents. No new b shares issued since 2003 as more firms went listed in overseas stock markets a55E5
4 5-19 Early Stage: 1980~1990 Sample shares in PRC in 1980s 5-20 Early Stage: 1980~1990 On Nov.14th, 1986,Mr. Deng Xiaoping gave Mr. John Phelan, president of NYSE, a share of Feile Acoustics stock as a gift. 5-21 Second Stage: 1991~1998 — Shanghai Stock Exchange (SSE) was established on Nov 26th 1990, and started to operate on Dec. 19th . — SATQ (System of Automated Trading and Quoting) was adopted in Dec 1990 —— Computerized trading system, automatic matching of buyers and sellers according to price and time — In Oct.1992, CSRC was established. — In April 1993, “Tentative Rules on Security Issuing and Transaction” was released. 5-22 Second Stage: 1991~1998 5-23 Second Stage: 1991~1998 — B shares market ◦ B shares was set up in 1992, traded in US dollars on SSE and in HK dollars on SZSE. ◦ Individuals and legal persons in the PRC were only allowed to buy and sell A shares, while foreigners and residents of Hong Kong, Macau, and Taiwan, could only buy and sell B shares. ◦ From February 19th 2001, B shares market became open to PRC residents. ◦ No new B shares issued since 2003 as more firms went listed in overseas stock markets. Second Stage: 1991~1998 — No. of A shares listed 5-24
Second Stage: 1991-1998 Second Stage: 1991-1998 No of listed b shares Market Development 1993-1998(in Billion Yuan) 9.98 38 11oe 3690e 948d 8127e 79 M4s2?52A■3n234 mn■ 25e 4.6d 19s2Ig 57454 25 Second Stage: 1991-1998 Second Stage: 991-1998 Market size till the end of 998 and Limit-down in sse Number of listed companies: 851 Total lssuing: 234.5 Billion Yuan Total market capitalization RMB 1952 Billion bec. 19- Dec 26.1990 (24% of GDP) Market capitalization of tradable shares: 574.5 Billion Yuan 6eb.7.l99 Aggregated capital raised: 778 Billion Yuan 上上 Dec 16. 1996-present 'Difierent limit-ups and-downs to todo. Second stage: 1991-1998 Third Stage: 1999-2008 Limit-up and Limit-down in SZSE July Ist, 1999: Security Law effective March 16 h, 2000: A Tutor Period of I year June 26- Now 1B, 1990 b14|90M|9 16 h. 2001: From March 2003. one. 7.199|Dec.l5.|99 nies should be independent directors. Ih, 2001: stamp tax reduced to 0.2% 5
5 Second Stage: 1991~1998 — No. of listed B shares 5-25 0 9 21 33 35 41 43 51 1 9 19 24 34 43 51 54 0 10 20 30 40 50 60 1991 1992 1993 1994 1995 1996 1997 1998 SSE SZSE Second Stage: 1991~1998 Financing With A shares Financing with B shares No. Of Investors (million) Total Market Cap. Market Cap. Of Tradable Shares Market Turnover Market Cap. as % of GDP 1993 27.64 3.81 8.35 354.15 86.16 362.72 10.20% 1994 9.98 3.83 11.08 369.06 96.89 812.76 7.98% 1995 8.55 3.34 12.94 347.43 93.82 403.65 5.94% 1996 29.43 4.72 24.22 984.24 286.70 2133.20 14.50% 1997 82.59 10.79 34.80 1752.90 520.44 3072.18 23.44% 1998 77.80 2.56 42.60 1952.18 574.54 2352.73 23.13% 5-26 Market Development 1993-1998 (in BillionYuan) 5-27 Second Stage: 1991~1998 — Market size till the end of 1998 ◦ Number of listed companies: 851 ◦ Total Issuing: 234.5 BillionYuan ◦ Total market capitalization : RMB 1952 Billion (24% of GDP) ◦ Market capitalization of tradable shares: 574.5 BillionYuan ◦ Aggregated capital raised: 778 BillionYuan Second Stage: 1991~1998 — Limit-up and Limit-down in SSE *Different limit-ups and –downs to stocks. 5-28 Duration Limit-up Limit-down Nov.26-Dec.18, 1990 3% 3% Dec.19-Dec 26, 1990 5% 5% Dec.27-Dec.30, 1990 1% 1% Dec.31,1990-Apr.25, 1991 0.50% 0.50% Apr.26-Feb.17,1992 1% 1% Feb. 18-May 20, 1992 1%-5%* 1%-5%* May 21, 1992-Dec 15,1996 None None Dec.16, 1996-present 10% 10% 5-29 Second Stage: 1991~1998 — Limit-up and Limit-down in SZSE Duration Limit-up Limit-down May 29-June 17, 1990 10% 10% June 18-June 25, 1990 5% 5% June 26-Nov. 18, 1990 1% 5% Nov.19-Dec.13, 1990 0.50% 5% Dec.14,1990-Jan.1,1991 0.50% 1% Jan.2, 1991-Aug.16,1991 0.50% 0.50% Aug.17,1991-Dec. 15, 1996 None None Dec.16, 1996-present 10% 10% 5-30 Third Stage: 1999~2008 — Regulations ◦ July 1st, 1999: “Security Laws” became effective ◦ March 16th , 2000:ATutor Period of 1 year required for companied that are going to get listed ◦ August 16th , 2001: From March 2003, onethird of the board members in listed companies should be independent directors. ◦ Nov 11th , 2001: stamp tax reduced to 0.2%