Chapter 3: Securities, Regulatory Authorities and H-Share Enterprises
I INTRODUCTION H-share ﬁrms are subject to regulatory control from both sides of the mainland–Hong Kong border. The aim of this chapter is ﬁrst to describe the broader role and powers of the regulatory institutions which oversee the securities markets in mainland China and in Hong Kong, and second to outline the framework within which H-share listing applications are assessed and approved by the diﬀerent regulatory authorities. This will then provide the institutional context for discussing the corporate governance reforms outlined in Chapter 4, and the case studies presented in Chapter 5. II THE CHINESE SHARE MARKET: AN OVERVIEW The Chinese legal system contains no express classiﬁcation of shares into diﬀerent types. Since its very earliest days, however, the China equity market has been notable for its rapid diversiﬁcation into a bewildering variety of shares. A A-Shares A-shares are domestically listed shares of Chinese companies which, until very recently, have been available to Chinese investors only. A-shares can be further divided into three diﬀerent classes: state-owned shares, legal person shares and ‘social’ (publicly owned) shares. According to Chao Xi, the legal strategy of dividing company shares into three classes based on the attributes of the shareholders was adopted in order to ‘secure the dominant position of state-ownership in larger companies transformed from SOEs’.1 State-owned shares are typically held by the central and local governments (represented by local ﬁnancial bureaus, state asset management companies or investment companies) and by the parent of the joint-stock company...
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