The history of Chinese stock markets has lasted for more than 100 years and reflects the growth of the national economy and changes in society during these years.
On August 12, 2010, the Shanghai Stock Exchange (SSE) closed at 2113.1 points. This is the highest closing record in China’s stock market history since December 1, 2005, closing at 3226.4 points.
Start trading and early development
China’s first modern share market started on January 28, 1891, with an auction to trade government bonds issued by three railways. It included:
- Zhengtong Railway,
- Guangdong-Guangxi Railway and
- Jiangsu-Zhejiang Railway –
Following the general manager, Kang Youwei’s expressed intentions (Kang Youwei was the first to propose that the country issue bonds finance railway construction) after taking over China’s railways.
The SSE started on October 1, 1990, as Shanghai New Exchange (SHEX), based on the amalgamation of three regional stock exchanges:
- Wenzhou-based East China Securities Exchange,
- Shenzhen-based South China Securities Exchange and
- Guangzhou-based Central South Securities Exchange.
On December 16, 1995, it changed its name to Shanghai Stock Exchange (SSE). “Standardization” made it one of the four leading securities exchanges globally.
During this period, investors mainly used stocks to hedge risk rather than for speculation due to low margins and lack of suitable derivatives. Trading was mainly limited to securities, with hardly any traded futures or options.
The golden period of the 1980s
On January 19, 1986, 12 state-owned large enterprises (including Industrial and Commercial Bank of China, Agricultural Bank of China and PetroChina) were listed on SHEX in accordance with the Economic Reform Decision to introduce market forces into the economy. However, these stocks were not well received due to their monopoly privileges in their respective sectors. Listing only improved liquidity (stock turnover averaged over ten times per year) without much effect on prices. On April 1, trading was suspended for three days following a 30 percent drop in value overnight during an unprecedented “Black Monday” when stock markets fell steeply worldwide.
In December 1986, SHEX launched a pilot project to allow qualified enterprises with limited power to issue stocks in the form of “H” shares and “L” shares. While these two kinds of securities were not tradable on SHEX at that time, they did help raise funds for companies and promote market development.
On August 26, 1992, China’s first two-way automated trading system was introduced on SHEX based on the GEM of Hong Kong. A daily average of 206 transactions worth 3 million yuan was recorded during the testing period from April 1 to September 30.
This system opened the door for new members such as individuals, enterprises and institutions to trade through designated brokers – an essential step towards reforming state-owned enterprises and allowing the public to participate in the equity market.
Separation of government and enterprises opening-up
On August 28, 1995, SHEX hosted a ceremony marking China’s first cross-border share offering by China National Petroleum Corporation (CNPC) for its subsidiary PetroChina Co., Ltd. CNPC sold two billion shares to raise an equivalent of US$3.2 billion from 33 international investors from 12 countries and regions:
- Japan
- The United States
- The UK
- France
- Canada
- Germany
- Italy
- Australia
- Hong Kong
At that time a record size for a foreign exchange transaction in China. The launch was a milestone in opening up reform. It allowed domestic and overseas institutions to invest directly in Chinese enterprises through securities, which epitomized the concept of “separation of government and enterprises” advocated by the Chinese government since the early 1980s.
On December 8, 1995, SHEX was granted permission to list 3 billion A-shares for state-owned enterprises. The market saw an explosion in new listings – from 0 in 1991 to about 60 each year between 1996 and 2000.
The success of these companies’ IPOs attracted significant public attention, while their inclusion on SHEX helped promote reform among state-owned enterprises (SOEs) across the country. After years of stagnation under central planning, it encouraged new businesses, where SOEs dominated China’s economy almost wholly.
A turning point
In July 1997, CNPC became the first company to introduce American Depositary Receipts (ADRs) – a new kind of security that allows international investors to buy and sell shares in Chinese companies abroad and vice versa.
SHEX also saw its first two-way opening transaction, which was at the time one of only seven such deals worldwide. The event was significant as it involved an A-share traded for the first time as an ADR on the New York Stock Exchange (NYSE).
In 2000, as part of China’s WTO accession package, three reform steps were implemented:
- full liberalization of stock prices,
- abolition of government control over corporate management; and
- partial privatization by listing state-owned enterprises.
These changes helped fuel activity on the exchange, with more new listings, especially of private enterprises. In 2004, SHEX introduced a more comprehensive and varied range of products to widen its appeal to small and medium-sized companies.
The Shanghai-Hong Kong Stock Connect launch in 2014 was another milestone that helped open China’s capital market even further by allowing international investors access to about 2,800 Chinese A-shares through a mutual market segmentation system. It also allowed reputable international brokers, like https://www.home.saxo/zh-hk/products/stocks to trade in China.
SHEX has constantly been innovating its business model, developing alongside China’s free markets and constantly strengthening its value proposition for its dynamic equity culture.
