In order to get an overall understanding of foreign ownership in China’s listed companies, it is necessary to make a brief review on the development of Chinese stock market in the process of opening.
2.1. The General Situation of Chinese Stock Market
Chinese stock market has been unique in the history of the world capital market so far for its quick-paced development, remarkable achievements and rich contents, though it has only a short history of 20 years.
2.1.1. Rapid Expansion of Chinese Stock Market Scale
The size of stock market is measured by variables such as the ratio of stock market’s capitalization relative over GDP, number of Listed Companies, number of investors and stock trading volume. Figure 1 shows that, 1) the ratio of gross value of stock market over GDP increases quickly, from 3.89% in the year of 1994 to 66.69% in the end of year of 2010, reaching a summit of 123.07% on October, 2007. 2) The number of listed companies grows quickly, from 34 companies in the year of 1992 to 2304 companies in the year of 2011, resulting in an approximately 70-fold increase. 3) The number of investors grows rapidly. Investor accounts increase from 2,166,500 to 13,909,080,000 (10 percent or more of the population of China), resulting in over 60-fold increase. 4) Stock trading volume grows rapidly, from 68.3 billion RMB in 1992 to 2,068 billion RMB in the first 11 months of 2011, resulting in an approximately 30-fold increase.
Figure 1. Chinese stock market capitalization and GDP from 1992 to 2010
2.1.2. Institutional Investors: The Main Force in Chinese Stock Market
Along with the development of twenty years, Chinese stock market has transformed from a market dominated by middle and small retail investors in the first 15 years into one experiencing the development of institutional investors especially securities investment funds in new Millennium, rapidly after 2005. End October 2011, there are 872 funds in Chinese stock market, while the proportion of the value of shares held by various institutional investors to negotiable stock market capitalization is over 71%.
2.1.3. The Construction of Chinese Multi-Level Capital Market System
Nowadays, China has two organized stock markets, Shanghai security exchange (SSE) and Shenzhen security Exchange (SZSE). A comprehensive multiple--level security trading system including Main-Board market, Small and Medium Enterprise(SME) Board market and Growth Enterprises Market(GEM) Board with different listing requirements has been formed to satisfy the demands of various investors and companies. Of which, Shanghai security exchange is the most important main board market. Shenzhen security Exchange (SZSE) is another main board market, but later mainly focuses on Small and Medium Enterprise (SME) Board. It is predicted that the pattern of Chinese stock market in the future will be that: SSE mainly develops main board market; while SZSE mainly develops SME board and GEM board markets. In addition, China has set up an OTC-like market, called Agency Share Transfer System, providing services for the share transferring of non-listed companies and companies exiting from main board.