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As
the China stock market and economy overall continue to post
impressive growth figures, international interest in investing
into the economy is also on the rise. The China stock market
presents opportunities for both domestic and international
investors. And, understanding some of the basic fundamentals
to the market will enable an investor to make the best financial
decisions with regards to their portfolios.
China
Stock Market Regulatory Bodies
The
regulations for the China stock market differ greatly from
that of the US as China is still a communist country. The
primary regulatory body for the China stock market is the
Securities and Futures Commission, similar to the Securities
Exchange Commission in the US. The role of these agencies
it to protect individual investors through the mandating of
rules and regulations for listing, and the buying and selling
of securities. Also, the Shanghai Stock Exchange is regulated
by the State Council Securities Management Department.
China
Stock Market Regulations
There
are listing procedures for all public stocks in China, typically
directly managed by either the Hong Kong Exchange or the Shanghai
Exchange. The companies that are officially listed must report
their financial performance on time and audits are officially
performed on the company’s financials to ensure their accuracy,
although they are typically more lenient than the same audits
performed in the US.
Company
Officer Procedures
In
the US, significant shareholders and company officers must
report any share movement in their portfolios of a given stock.
This is for the general protection of the stock price on the
market for all shareholders, as a significant buy or sell
of a particular security could cause significant swings in
the stock’s value. In China, such reporting requirements are
not mandated. There are new rules being evaluated that would
require more regulation of these individuals and their actions
within a portfolio, although they are not regularly enforced
currently.
The
Chinese Government’s Role in the China Stock Market
Due
to the communist nature of the China economy, many companies
listed on the China stock market were once owned directly
by the government itself. And, in part, the government still
owns a majority share in many of these now publicly traded
companies. And, there is no guarantee to the investor today
that the government would not step back in and take over control
of the traded company, leaving investors potentially in a
negative financial situation.
As
the China economy continues to expand, investors have placed
their attention on capturing this growth within their investment
portfolios. While investments into the China stock market
do not have to be direct, many investors are exploring this
opportunity as the doors have been recently opened to foreign
investors. Otherwise, investors can capture the China market’s
presence by investing on China companies listed domestically
or through depository receipts.
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