China Stocks : B-Share in Details
Although I have explained what is B-share in my article “What are A-share, B-share, H-share and Red Chip in China Stocks”, I have not elaborated how B-shares are traded. Recently I discovered some investors searching the web for China B-share List. If they do not live in China or Taiwan, I am afraid most of them misunderstand China B-Share and think that they can get access to B-shares easily.
Background of China Securities Class B Share
The China stock markets ceased operations when the communists took over China in 1949. In wake of Chairman Deng Xiaoping’s opening up policy in the 1980s, stocks gradually resumed trading. Shanghai Stock Exchange and Shenzhen Stock Exchange were established and started operations in late 1990.
At first, the China stock markets were only open to local Chinese in mainland China. To allow foreign investors to participate upon their requests amid open policy, to gain experience from western countries, and to prevent sophisticated foreign investors to exploit the inexperienced Chinese investors, securities were divided into Class A Shares and Class B Shares. Class A Shares were limited to domestic investors (excluding Hong Kong residents), while Class B Shares were only available to foreign investors. In 1992, the first B-share made debut on the stock market and by February 2010 there were 57 B-shares on Shanghai and 57 B-shares on Shenzhen stock exchanges.
Opening of B-shares to Local Chinese
As the China stock markets grew bigger, there were demands from both domestic and foreign investors to open the B-share market to Chinese residents. The Chinese government also felt confident to open the B-share market with a decade of experience in China stock market operations. Hence, in March 2001, B-shares were made available to both domestic and foreign investors, though A-shares were still confined to domestic investors and QFII.
The B-share Carnage
Several months before the official announcement of opening B-shares to local Chinese, resourceful foreign investors had learned about this and they started to cumulate B-shares in the stock markets. In Shenzhen, the B-share index rose 9 times from 75 in early 2000 to 705 in October 2000. Though it plummeted 82% to 125 by mid February 2001 pertaining to rumors of scrapping the open plan, it rose back to 435.57 on May 21, 2001, just 7 weeks after the opening of the B-share market. It gradually fell 57% to 186.97 on December 30, 2002.
On the other hand, the Shanghai Stock Exchange B-share Index rose 662% from 35 in early 2000 to 231.89 on May 28, 2001, and gradually dropped 76% to 55 on July 18, 2005.
Both Shanghai and Shenzhen B-share Indices did not revisit their 2001 highs till 2007. The immature Chinese investors were the losers of this carnage and they blamed the foreign investors for exploiting their inexperience. This had far reaching effects and was perhaps the main reason for China to scrap the “Hong Kong Stock Through Train” program, which would allow mainland Chinese to invest in Hong Kong stocks directly, in 2007.
Trading of China B Shares
- B Shares are open to local Chinese, Hong Kong residents, Taiwan residents and foreigners. At first the Hong Kong and Taiwan Chinese were interested in trading B shares. However, as the A share markets have got more and more public listings from state enterprises, large companies and banks, their interests in the relatively small B share markets listed with comparatively smaller enterprises have faded. The focuses of the Hong Kong investors are on H shares and Hong Kong blue chips, and few Hong Kong people trade B-shares nowadays.
- Shanghai B-shares are traded in USD, while the B Shares on the Shenzhen Stock Exchange are traded in Hong Kong Dollar. The settlement date for trades is T+3.
- To trade B-shares, the investor has to open a B-share account with the stock exchange. In Shenzhen, the fee is HKD120, and in Shanghai the fee is USD19. Investors have to open accounts separately if they want to trade both Shanghai and Shenzhen B-shares. For foreign investors living outside China mainland, they have to open an account through a brokerage firm with connection to China mainland stock exchanges. They have to make arrangements with those firms if they want to trade on-line.
- Trading B Shares is subject to a 10% daily price up and down limit, except for the first trading day.
- Trading hours are same as A-shares.
For more details, please read the article on China Shanghai B Share Trading System.
China B-share Indices
- Shaenzhen Stock Exchange B-share Index
- Shanghai Stock Exchange B-share Index
China B-share Lists
Conclusions
China B-shares are highly speculative and they are less transparent than A-shares or H-shares. It is often difficult to find information on them, especially in English. The number of B-share stocks is small and the total market capitalization is only a small fraction of the A-shares. The high volatility of B-shares nevertheless attracts Chinese investors and foreign institutional investors in mainland China; the former want to speculate while the latter have to keep the show going. By statistics , 86% of the B share turnover are made by domestic investors. In practice, it is inconvenient for foreign investors living outside China, Hong Kong and Taiwan to trade B-shares. It is much easier to trade China stocks via Hong Kong Stock Exchange, ADRs in US and other DRs in Europe.
Related articles on this website:
What are A Share, B Share, H Share & Red Chip
China Shanghai B Share Trading System
