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We have fielded a lot of questions over the last few weeks around investing in China.  Compelling valuations and a rebounding economy have seen increased flows into Chinese stocks, earning investors double digit growth in just a single month.

Chinese companies tend to have multiple listings which makes investing in them a little more complicated, however hopefully this article will demystify things.

The Chinese Stock Exchanges

There are three independently operated stock exchanges within mainland China.  The Shanghai Stock Exchange (“SSE”) is the world’s fifth largest stock market measured by market capitalisation.  SSE is marginally bigger than the Shenzen Stock Exchange (“SZSE”) which is placed as the world’s seventh largest stock market, also measured by market capitalisation.  The new kid on the block is the Beijing Stock Exchange (“BSE”) which only opened in 2021 and remains in its infancy.  

Chinese law has some protective elements against foreign influence and their stock listing rules reflect that.  Each listed company in China issues “A-shares” which are only available for purchase by mainland citizens.  A-shares are viewed as domestic shares, and they are valued in Renminbi.  Companies can also issue “B-shares” which are available for purchase by foreigners, and these are traded in US Dollars on SSE and Hong Kong Dollars on SZSE.

Mainland China Indices

The most common referenced index is the CSI 300 index.  This index constructed by the China Securities Index Company and its constituents are the 300 largest companies listed on the mainland.  It includes all A-shares and all B-shares.

The 10 largest constituents of the index are as follows:

This index is at similar levels that it reached at the end of 2014 and is notable for its absence of the tech giants.  This is because SSE & SZSE are not the only available exchanges for companies to list their shares on.

Hong Kong

Companies are also able to issue “H-shares”.  These are shares of mainland China companies which are listed on the Hong Kong Stock Exchange (“HKEX”).  These shares trade in Hong Kong Dollars and there are no restrictions on who can purchase them.

A look at the top 15 constituents of the Hang Seng Index reveals the extent of Chinese companies listed on the HKEX.  All the tech giants appear as we see shares for Tencent and Alibaba accounting for a sizeable portion of the index.

American Depositary Receipts (“ADR”)

Further Chinese companies also have the ability to issue shares on US stock exchanges through an ADR structure.  ADRs are a form of equity security that was created specifically to simplify foreign investing for American investors.  An ADR is issued by an American bank or broker. It represents one or more shares of foreign-company stock held by that bank in the home stock market of the foreign company.

We see a number of well-known names listed as ADRs.

Chinese ADRs do come with additional expenses and some of them have ownership risks.  In certain of the ADRs they have employed a Variable Interest Entity (“VIE”) to gain access to the A-shares of Chinese entities.  Now remember that these A-shares can only be held by Chinese nationals. So, the VIE combines a Chinese agent who holds the shares locally and a shell company in a tax efficient location (mostly often the Cayman Islands) that reflects ownership through a serious of controlling agreements.  In other words, when investors buy certain Chinese ADRs, they are usually buying into a Cayman shell company with a legal agreement in place to reflect the shares owned by a local Chinese agent, who is the legally recognized holder of the China A-shares.  The ADR in these instances does not represent a direct interest in the Chinese company.

Gaining exposure to Chinese stocks

One can see that there is a lot to consider when investing in China.  With the wide dispersion of listings, you need to really understand what you are buying, and more importantly where you are buying.  There are a number of ETFs that give one exposure to China, and there is a team at Magwitch that is able to identify the correct one for your needs.   


Magwitch Offshore is a leading provider of Global Balanced ETF portfolios with products in all major currencies. Magwitch utilises an advisor distribution model and their portfolios are available through offshore endowment structures provided by some of the larger Insurers.  Nothing in this Insights can be construed to be financial advice.