DEFINITION of Red Chip
A red-chip company is one that is based in Mainland China but incorporated internationally and listed on the Hong Kong Stock Exchange. Red-chip stocks are expected to maintain the filing and reporting requirements of the Hong Kong exchange, which makes them a main outlet for foreign investors who wish to participate in the rapid growth of the Chinese economy.
Red chips may be issued in addition to A-shares in the same companies, although only Chinese citizens can invest in A-shares.
BREAKING DOWN Red Chip
Over 30 red chip stocks (a reference to the color of China's flag) make up the Hang Seng China-Affiliated Corporations Index.
As of June 2018, the index consisted of:
- Industrial and Commercial Bank of China Limited
- China Petroleum & Chemical Corporation
- CNOOC Limited
- WH Group Limited
- CSPS Pharmaceutical Group Limited
- Ping An Insurance (Group) Company of China, Ltd.
- The Hong Kong and China Gas Company Limited
- China Mobile Limited
- AIA Group Limited
- Tencent Holdings Limited
- China Mengniu Dairy Company Limited
- CITIC Limited
- Hang Lung Properties Limited
- New World Development Company Limited
- China Resources Land Limited
- China Resources Power Holdings Company Limited
- BOC Hong Kong (Holdings) Limited
- Galaxy Entertainment Group Limited
- Sino Land Company Limited
- Wharf Real Estate Investment Company Limited
- Sands China Ltd.
- Power Assets Holdings Limited
- AAC Technologies Holdings Inc.
- CLP Holdings Limited
- Henderson Land Development Company Limited
- Sun Hung Kai Properties Limited
- Hengan International Group Company Limited
- CK Infrastructure Holdings Limited
- The Bank of East Asia, Limited
The above companies are in order of highest to lowest volume of trades.
As a sign of the pent-up demand among mainland Chinese citizens for Chinese stocks, the A-shares they are permitted to invest in often have significant premiums compared to red chips for the exact same companies.
Red Chip and the Hong Kong Stock Exchange
The Hong Kong Stock Exchange (HKG) is a member of the HKEX Group and the leading venue for capital raising activity for Hong Kong and Mainland Chinese issuers. The exchange traces its origins to the founding of China's first formal securities market, the Association of Stockbrokers in Hong Kong, in 1891. A second market opened in 1921, and in 1947, the two merged to form the Hong Kong Stock Exchange. Today, the Hong Kong Stock Exchange is of the world's largest securities markets by market capitalization.