Southern Perspective Shenzhen

We all know the Chinese love to save their money, it’s almost the national sport.

No wonder Shenzhen has all the money in the world and won’t pay for a decent football team.

So why are international financial service companies’ not making record profits in China?

The Chinese securities market is very different from western securities markets, learning what these differences are and how they could possibly change can increase your chance for success.

This and following posts will introduce some of the barriers that foreign companies face when trying to gain entrance to the market and how the Chinese market is different from other international markets.

The biggest difference in the Chinese securities market from other markets is the amount of ownership the state has through State Owned Enterprises (SOEs).

When a Chinese SOE opens itself up to investment through an Initial Public Offering (IPO) about two thirds of the shares remain in the hands of the government through SOEs.

This creates a potential conflict of interest because the state has a vested interest in the success of its own companies, as opposed to simply being a referee that ensures fair play.

The Securities and Exchange Commission (SEC) in the has a more clear cut task of monitoring and making sure companies are in compliance with regulations, on the other hand, the Chinese Securities Regulatory Commission (CSRC) must juggle the jobs of developing state assets while at the same time avoid social instability.

This puts many investors in a difficult position, both Chinese individual investors and foreign firms looking to develop a strong Chinese portfolio.

Both of these groups are not able to purchase a majority stake holding in a Chinese company and are not able to have an active voice in the direction the company takes.

This structure encourages investors to be short sighted with their investments, to be speculative and ride the ups and downs of the market instead of finding a company that they believe in and investing for the long term.

The Chinese stock markets will not be able to escape the fluctuations that have plagued the system in recent year until they can decide the position that the state will occupy.

Playing both a regulator and a heavily invested owner in the stock market is not likely to inspire confidence in neither foreign investors nor its own citizens, but maybe thats not the point.