Expat Focus - Policy and Regulation

How can a foreigner invest in the mainland's stock markets?

Updated: 2010-08-04 15:46
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Although foreigners are not allowed to trade in A shares directly, there are other ways to invest in China's stock markets.

Generally, foreign investors can purchase B shares in the Shanghai and Shenzhen stock exchanges, trade in China's stock market via the Qualified Foreign Institutional Investor (QFII) system, or purchase China Exchange-Traded Funds {ETFs) on US stock exchanges.

Most companies listed on Chinese exchanges will offer two share classes: A-shares and B-shares. B-Shares are also traded on the Shanghai or Shenzhen stock exchanges, but quoted in foreign currencies (Shanghai B-shares trade in US dollars, while Shenzhen B-shares trade in Hong Kong dollars).

B shares are available for both domestic and foreign investment, providing that locals set up a foreign currency account.

Foreign investors also can trade in China's stock market via the Qualified Foreign Institutional Investor (QFII) system. What is QFII?

This is a Chinese program launched in 2002 to allow licensed foreign investors to buy and sell yuan-denominated A shares in China's mainland stock exchanges (in Shanghai and Shenzhen). As of February 2009, a total of 79 foreign institutional investors have been approved under the QFII program.

In addition, overseas investors also can participate in China's stock markets by purchasing Exchange-Traded Funds {ETFs). An ETF is a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange.

China's ETFs track the equity stakes of China-based companies, either through investment on Chinese stock exchanges or via foreign-listed shares such as American depositary receipts (ADRs).

There are several ETFs that can be purchased on US stock exchanges, such as iShares FTSE/Xinhua China 25 Index Fund(FXI), the PowerShares Golden Dragon Halter USX China ETF (PGJ) and iShares MSCI Hong Kong Index Fund (EWH).