H-Shares vs. A-Shares: An Overview
Buying shares of publicly traded companies in the People's Republic of China (PRC) are not quite as simple as buying shares of stock in the United States. While shares traded on public markets in the United States are generally available to anyone who has the money to pay for them, the Chinese stock markets have strict restrictions on who can buy and what is available to them for purchase. The distinctions are important to know if you want to start trading or investing there.
Publicly traded companies in China generally fall under three share categories:
- A-shares represent publicly listed Chinese companies that trade on Chinese stock exchanges, such as the Shenzhen and Shanghai Stock Exchanges. These stocks trade in yuan renminbi (CNY).
- B-shares are Domestically Listed Foreign Investment Shares and list on the Shenzhen and Shanghai exchanges, and trade in foreign currencies.
- H-shares traded on Hong Kong's exchanges, are regulated by Chinese law and are freely trade-able by anyone. These shares trade using the Hong Kong dollar (HKD).
Depending on where they are listed, all three shares may have renminbi denomination but trade in varying currencies.
Chinese A-shares are the shares of incorporated companies based in mainland China that are listed on either the Shanghai or Shenzhen stock exchanges. A-shares are generally only available for trading to mainland Chinese citizens. However, foreign investment in these companies is allowed through a regulated structure. Some institutional investors may qualify as Qualified Foreign Institutional Investor (QFII) or other strict trading programs. Only a select group of institutional investors have qualified for QFII status and can buy and sell Chinese A-shares.
After 2007, China let mainland Chinese investors purchase either A-shares or H-shares of companies listed on the Shanghai Stock Exchange. Before that, Chinese mainland investors could purchase only A-shares, even though H-shares were also offered. Since foreign investors may trade H-shares, the shares are more liquid than A-shares.
A-shares are issued in China under Chinese law and are quoted in Chinese yuan or renminbi. For American investors who are not QFII qualified, the only way to access these shares may be through an emerging market fund or by investing in American depositary receipts (ADRs).
B-shares also made up of incorporated Chinese companies, are quoted in foreign currencies, such as the U.S. dollar (USD) and the HKD, depending on the listing exchange. B-shares are more widely available to foreign investors.
Chinese H-shares represent the shares of publicly traded incorporated Chinese companies listed on the Hong Kong Stock Exchange. H-shares are issued in China under Chinese law and are subject to the Hong Kong Stock Exchange's listing requirements.
The rules state that annual accounts must follow Hong Kong or international accounting standards. Also, a company’s articles of incorporation must include sections clarifying the varying nature of domestic shares and foreign shares, including H-shares, as well as the rights given to each purchaser.
Unlike A-shares listed on the Shanghai or Shenzhen stock exchanges and trading in Chinese renminbi, H-shares quote, and trade with a face value of Hong Kong dollars. Also, H-shares are open for trading to all investors.
There are usually price discrepancies between a company's A-shares and H-shares. Also, A-shares generally trade at a premium to H-shares.
- A-shares are shares of companies based in mainland China that are listed on either the Shanghai or Shenzhen stock exchanges.
- A-shares are generally only available for trading to mainland Chinese citizens.
- H-shares of Chinese companies listed on the Hong Kong Stock Exchange are quoted and trade with a face value of Hong Kong dollars.
- H-shares are open for trading to all investors.