What Are B-Shares?
B-shares refer to equity share investments in companies based in China. These shares are traded on two Chinese stock exchanges: the Shanghai Stock Exchange and the Shenzhen Stock Exchange in mainland China.
Shares are denominated in renminbi, which is the national currency of China but settled in U.S. dollars (Shanghai) and Hong Kong dollars (Shenzhen). They are open to investment by individuals in China who have foreign currency accounts as well as foreign investors.
Key Takeaways
- B-shares are equity share investments of companies based in China.
- These shares trade on the Shanghai Stock Exchange and the Shenzhen Stock Exchange.
- The face value of B-shares is in renminbi but the shares settle in U.S. and Hong Kong dollars on the Shanghai and Shenzhen exchanges, respectively.
- B-shares are open to foreign investors and Chinese residents under several investment programs.
- Chinese corporations also list A-shares and H-shares for foreign and local residents.
Understanding B-Shares
Although China’s stock market is one of the largest in the world, its equity markets are relatively new, having only started development in the early 1990s.
Rapid economic growth and the rise in attractive corporate expansion in China attracted a lot of interest from international investors. However, investment in Chinese companies was traditionally closed to foreigners. This began to change, though, between the late 1990s and early 2000s, when the country began inviting investment from people outside the country.
Chinese B-shares allow foreign investors to take part in the country's equity markets. B-shares are also called "domestically listed foreign investment shares."
They trade on two of the country's leading stock markets, the Shanghai Stock Exchange and the Shenzhen Stock Exchange. The face value of stocks that fall into this category is in the renminbi (the local currency) but transactions settled in foreign currencies, namely U.S. dollars in Shanghai and in Hong Kong dollars (HKD) in Shenzhen.
B-shares were initially offered to target investment from foreign investors. The China Securities Regulatory Commission opened up investment in B-shares from local Chinese investors in Feb. 2001. By opening up this investment channel, local residents are allowed to trade these shares on the secondary market.
A total of 44 companies trade B-shares on the Shanghai Stock Exchange as of Jan. 25, 2024, while 41 shares trade on the Shenzhen Stock Exchange as of Dec. 2023. These companies represent a variety of sectors, including retail, electronics, machinery, real estate, tourism, and food and beverage.
Don't confuse China B-shares with Class B shares. The latter is a share class of common stock that provides fewer voting rights to shareholders in the Western markets.
Special Considerations
B-shares represent one form of equity investment available to investors who want to take advantage of the Chinese market. A-shares and H-shares are also open to investors who live outside China.
A-shares trade on the Shanghai and Shenzhen exchanges. These are companies that are incorporated in China. The face value of these shares and their settlements are in renminbi. China generally only allowed residents to trade these shares but opened up this class of shares to foreigners under the Qualified Foreign Institutional Investor program, the Renminbi Qualified Foreign Institutional Investor program, and the Stock Connect program.
Shares of companies incorporated in China that trade on the Hong Kong Stock Exchange are called H-shares. They trade in HKD. Since shares are traded in Hong Kong, there are no bans on investment. As such, foreign investors can buy and sell H-shares. Chinese residents can also trade shares provided they are qualified domestic institutional investors (QDII).
Alternative Investments
China is one of the world's most advanced and sophisticated emerging market economies. As such, investments in Chinese stocks may have high risks but they also have a high potential for gains. There are investment funds that exist for retail investors who prefer to invest in diversified portfolio offerings over individual shares. Most diversified portfolio offerings are structured as mutual fundsor exchange-traded funds (ETFs).
Many funds invest in Chinese equities, usually by tracking a Chinese-focused index, such as:
- The Shanghai Composite Index, which is a benchmark index that holds shares and CDRs offered by Chinese companies on the Shanghai Stock Exchange, and provides one of the most comprehensive indexes for tracking Chinese equities.
- The S&P China Broad Market Index (BMI), which is comprised of 3,282 of China’s publicly traded equities available for foreign investors as of Jan. 31, 2024. Investors may choose to invest in the SPDR S&P China ETF (GXC), which is a passively managed ETF that seeks to replicate the holdings and performance of the S&P China Broad Market Index.
- The MSCI China All Shares Index, which includes B-shares, A-shares, and H-shares. Investing in multiple share classes from China can be complex. Few funds offer comprehensive market exposure to both A-shares and B-shares, but the DWS X-trackers Harvest MSCI All China Equity ETF (CN) that tracks the MSCI China All Shares Index does.
What Are China H-Shares?
China H-shares are the shares of over 300 mainland Chinese companies that are available for foreigners to trade on the Hong Kong Stock Exchange.
How Do You Invest in Chinese Equities?
Investing directly in Chinese equities isn't always the easiest process. Investors can choose to invest in Chinese companies that have American depository receipts (ADRs), so investors can purchase them as normal on U.S. exchanges. Another easy way, which allows for broader exposure and simplicity, is through the funds that track Chinese indexes, such as the SPDR S&P China ETF (GXC) and the iShares MSCI ETF (MCHI).
What Is the Difference Between B-Shares and H-Shares?
The difference between B-shares and H-shares in Chinese equities is that B-shares trade on the Shanghai Stock Exchange and the Shenzhen Stock Exchange, and are domestically listed. H-shares trade on the Hong Kong Stock Exchange. Both are available to local and foreign investors.
The Bottom Line
B-shares are shares of Chinese companies that trade on the Shanghai Stock Exchange and the Shenzhen Stock Exchange. Both locals and foreigners can invest in these shares. For foreigners, the easiest way to gain exposure to Chinese companies is through exchange-traded funds (ETFs).
