Buy Shares in Chinese Companies

China’s emerging market can be attractive to foreign investors. However, the Chinese market is regulated in specific ways that restrict how foreign investors can purchase stock in Chinese companies. Nevertheless, multiple options are available to those who would like to gain direct and/or indirect exposure to Chinese stock markets.

Steps

Purchasing Stocks from Chinese Stock Exchanges

1. Research to learn which stocks are available and right for you. There are several types of stocks that can be bought from Chinese exchanges (for example, A-shares, B-shares, and H-shares). Different regulations, fees, and procedures apply to each one.
   • You can research different types of stocks and information about Chinese stock exchanges by reviewing databases such as Morningstar, Barron’s, and Bloomberg, as well as online stock trading services.
   • Think about choosing stocks that have the right cost, risk level, diversity, and potential returns for your particular investment portfolio.
   • If you are relying on translated sources for information about the Chinese market, keep in mind that the sources might not be the most current or detailed.
   • Since foreign markets can be particularly complicated, it is a good idea to seek advice from a financial professional before investing in them.
2. Contact your broker or investment service when you are ready to purchase stocks. When you are ready to buy shares in Chinese companies, contact your broker, who can guide you through the process and answer any questions you may have. With internet-based stock trading, you can also purchase stocks on your own in many cases. Visit your online investment service for details on which options are available to you.
   • Information about fees, limits on the number of shares you can buy, and/or minimum numbers of shares you must purchase at a time can be obtained from your broker or online trading service. This information will be listed for each stock that is for sale.
   • As with any investment, there is some level of risk with buying stock in Chinese companies. No one can predict with complete certainty which stocks will succeed, but you can make an educated decision getting the best information possible from your broker or independent research.
3. Purchase A-shares of Chinese stocks. A-shares are a class of stocks in Chinese companies that trade on the Shanghai and Shenzhen stock markets. These can only be purchased by residents of mainland China, and by certain Qualified Foreign Institutional Investors (QFIIs).
   • A-shares are quoted in renminbi, the official currency of China.
   • Individuals cannot become QFIIs. These are designated by the Chinese Securities Regulatory Commission (CSRC) and are very large foreign financial companies such as Merrill Lynch, Goldman Sachs, Scotiabank, Deutsche Bank, and Lehman Brothers.
4. Purchase B-shares of Chinese stocks. B-shares are a class of stocks in Chinese companies that trade on the Shanghai and Shenzhen stock exchanges. Unlike A-shares, these can be purchased by foreign investors.
   • The number of companies offering B-shares is relatively small.
   • B-shares of Chinese stocks are quoted in foreign currencies. B-shares listed on the Shanghai stock exchange are quoted in United States dollars, while those listed on the Shenzhen stock market are quoted in Hong Kong dollars.
5. Purchase H-shares of Chinese stocks. H-shares are a class of stocks in companies incorporated in China but which trade on the Hong Kong Stock Exchange (HKEx). These can be purchased from the HKEx by foreign investors.
   • Many companies that have H-share listings also have A-share listings. Effectively, this provides a way of purchasing stock in Chinese companies that are otherwise barred from foreign investors.
   • Shares are sold through the HKEx in bulk groups known as "board lots." The size of a stock's board lot ranges from 50-100,000 shares. Shares in companies listed on the HKEx must be bought in multiples of the stock's board lot amount.
   • The number of companies offering H-shares is limited. You can check the HKEx website in order to see which companies list H-shares, their stock codes, board lot amount, and other pertinent information.
6. Purchase Red Chip stocks. These stocks are issued by companies that are not incorporated in China, but which trade on the Hong Kong Stock Exchange. Red Chip stocks provide exposure to the Chinese market because companies offering them are owned by the state, provinces, or municipalities of China. On the other hand, this means that Red Chip stocks are not investments in private Chinese businesses, which may or may not be one of your financial goals.
7. Purchase P-Chip stocks. P-chip stocks are issued by companies based outside of China, but which trade on the Hong Kong Stock Exchange and meet certain criteria proving their ties to the Chinese market. The criteria stipulate that to issue P-Chip stock, a company must:
   • Be controlled by Chinese individuals
   • Derive more than eighty percent of its revenue from China
   • Allocate more than sixty percent of its assets to China

Purchasing Chinese Stocks from non-Chinese Stock Exchanges

1. Do research to learn which stocks are available and right for you. There are several types of Chinese stocks that can be bought from non-Chinese exchanges. Different regulations, fees, and procedures apply to each one.
   • You can research different types of stocks and information about Chinese stock exchanges by reviewing databases such as Morningstar, Barron’s, and Bloomberg.
   • Think about choosing stocks that have the right cost, risk level, diversity, and potential returns for your particular investment portfolio.
   • If you are relying on translated sources for information about the Chinese market, keep in mind that the sources might not be the most current or detailed.
   • Since foreign markets can be particularly complicated, it is a good idea to seek advice from a financial professional before investing in them.
2. Contact your broker or investment service when you are ready to purchase stocks. When you are ready to buy shares in Chinese companies, contact your broker, who can guide you through the process and answer any questions you may have. With internet-based stock trading, you can also purchase stocks on your own in many cases. Visit your online investment service for details on which options are available to you.
   • Before purchasing any shares in a company, make sure you know and understand any fees, limits, and risks associated with its stock.
3. Purchase N-shares. N-shares are available for Chinese companies incorporated outside of the country, and are usually listed on foreign stock exchanges such as the NYSE and NASDAQ. A majority of the revenue or assets for companies offering N-shares must come from China.
4. Purchase shares in Chinese ADRs or GDRs. American Deposit Receipts, or ADRs, is a kind of representation of a non-U.S. company trading on a U.S. stock exchange. There are a number of Chinese ADRs available to trade.
   • ADRs are traded like regular stocks (listed and paying dividends in American dollars), and issues such as currency exchange, fees, and taxes may be managed by the bank issuer.
   • Global Deposit Receipts, or GDRs, work much the same way as ADRs in other areas.
5. Consider purchasing shares in a China-focused ETF. Exchange-traded funds, or ETFs, are like mutual funds in many ways but have a few key differences, such as the fact that they can be bought and sold throughout the day (similar to stocks), and are designed to track a market index. Some ETFs focus on Chinese corporations entirely or in large part, so these can be a way of investing in the Chinese market.
   • Chinese stock indexes, which China-focused ETFs attempt to track, may be structured very differently than your local stock exchange’s index, and have other distinct differences. Make sure to research these ETFs and/or speak to your broker before purchasing shares in them.
6. Consider purchasing shares in a mutual fund with Chinese interests. If you cannot or do not want to directly purchase stocks in Chinese companies—or if you simply want to diversify your holdings—you can purchase shares in a mutual fund that invests in China. In this way, you will still indirectly tie your investment to the Chinese market while leaving the actual purchasing of Chinese stocks to the mutual fund managers.
   • You can find out if a mutual fund invests in Chinese stocks by reviewing its profile and portfolio holdings. This information can be found in the fund’s prospectus, from your broker, or through your online investment service.

Tips

• Make sure you are familiar with any currency exchanges that may have to be made in the process of buying shares in Chinese companies.
• If you are interested in buying stocks from China, keep yourself informed about its market by reading business news and consulting with your broker or trusted financial advisor.
• Make sure you understand the fees, taxes, and other costs that may be associated with purchasing Chinese stock.

Warnings

• Investing abroad can be very risky. This type of investment should constitute a reasonable percentage of your overall portfolio. For example no more than 10% of your overall total portfolio.

Related Articles

• Buy Chinese Yuan
• Determine the Distribution of Stock Returns
• Know When to Sell a Stock
• Avoid Value Traps in Stocks
• Understand Single Stock Futures

Sources and Citations

__

See also

• Find High Yield Stocks
• Analyze Employee Stock Options
• Account for Stock Split
• Pick and Trade Penny Stocks
• Invest in Stocks
• Buy Stock Without a Broker
• Choose Stocks
• Buy Stocks
• Invest in the Stock Market
• Research a Stock

Read more ...

What links here

• Build a Stock Portfolio
• Buy Gold Stocks
• Invest in Penny Stock