The People’s Republic of China (PRC) has been one of the most fashionable investment themes in Asia over the past few years. As international investors sought to gain access to the world’s fastest growing economy, China’s GDP growth reached 13.5 per cent in 1993 and an estimated 10 per cent in 1994, with industrial production continuing to surge by an annualised 16 per cent in value added terms in the first half of 1994. 1 The China stocks listed in Hong Kong and other exchanges like Shanghai and Shenzhen present an attractive opportunity to investors wanting to participate in the modernisation of the country’s economy in the longer term. The PRC’s stock markets are developing rapidly and the number of listed companies is set to expand substantially in the coming years. In the short term, however, China’s own stock markets will remain relatively small and illiquid for an economy of its size. They will also experience many problems, some common to other emerging markets and some peculiar to China. This chapter provides an overview of the development of the China stock markets over the past decade, from their origins in ‘curb’ markets in employee stock to the increasingly sophisticated markets in Shanghai and Shenzhen today, It also discusses the evolution of Hong Kong as a ‘China market’ through the H share listing programme and offers some speculation over the prospects of both mainland’s and Hong Kong’s stock markets.
The original securities markets in China were established in the 1890s. During the 1930s and 1940s, Shanghai was home to Asia’s most vibrant stock markets. Trading reached its zenith during the Japanese occupation of the city. In 1948, due to the hyper-inflation experienced under the Kuomingtang government, the markets were suspended. The following year saw the markets officially closed with the gaining of power of the Chinese Communist Party (CCP). The CCP viewed stock markets as one of