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Most companies listed on Chinese exchanges offer two share classes: A-shares and B-shares.

A-shares trade on the Shanghai and Shenzhen stock exchanges, and are exclusively quoted in Chinese renminbi. Previously, they were available only to mainland citizens, but recent changes have opened them for foreign investors through the tightly regulated qualified foreign investor system.

B-shares are also traded on the Shanghai and Shenzhen, but they’re quoted in foreign currencies such as the U.S. dollar. They are open to domestic and foreign investors.

Large demand for Chinese equity is compelling the nation to blend the two stock classes and allow direct foreign investment into mainland companies. Companies with both share classes see their B-shares trade at a discount to their A-shares, and their A-shares have more trading volume.

A-shares experienced explosive growth when China lifted investing restrictions on its citizens from 2005 to 2007. In fact, many A-shares sold for much more than the same stock on a different exchange at that time.

Demand for Chinese equity should remain strong as long as regulations become uniform and reporting requirements meet global standards.

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