What is 'China Concepts Stock'

China Concepts Stock is the stock of a company whose assets or earnings have significant activities in China. China concepts stocks trade on different stock exchanges such as the Hong Kong Stock Exchange, under the name of H-Shares or "red chip" stocks. The People's Republic of China is undergoing a major financial transformation, so many leading mainland-based companies choose to list themselves elsewhere to gain access to investor capital as quickly as possible.

China Concepts Stocks are considered one of the purest investment plays on China's long-term economic growth outside of direct mainland investment.

BREAKING DOWN 'China Concepts Stock'

Beginning in 1980, the PRC (Peoples Republic of China) started opening up to joint ventures with foreign companies. China is developing capital markets of its own to attract foreign funds; they have taken part in the some of the biggest initial public offerings in history as they transition large state-run businesses into publicly-traded companies.

Awakening the Tiger

China Concepts Stocks are listed on exchanges around the globe, including: Hong Kong Stock Exchange (HKEx), Singapore Exchange (SGX), New York Stock Exchange (NYSE), Nasdaq, London Stock Exchange (LSE), Euronext, and the Tokyo Stock Exchange (TSE). Many of the shares listed on the U.S. exchanges are American Despositary Receipts (ADRs), a negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock traded on a U.S. exchange.

Investing in the shares of companies based in China is not for the fainthearted. The nation's economy is the second-largest in the world behind the U.S., yet its transparency and financial reporting leaves much to be desired. Share prices are volatile as well, with wide swings often based on political factors. The Chinese government meddles more in the markets than U.S. investors may be accustomed to.

The Chinese government has effectively proven its willingness to change the rules of the game when it seems favorable. This has harmed the credibility of both the stock market and the government, making it hard to trust China’s commitment to a more liberalized economy.

Data on individual companies operating in China can be unreliable and the SEC has investigated stock frauds tied to companies in the region. The Chinese government itself has been accused of putting out false figures about its economy. Its annual growth rate, for eample, may be anywhere from zero percent to in the double digits.

Gary Shilling, president of economic research firm A. Gary Shilling and Co., told CNBC, "Nobody knows for sure, but when we look at things that are harder numbers to fudge... our estimate [for China GDP] growth is probably about 3.5% versus roughly 7% [reported by China in 2015]."

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