Rules on the Listing of Corporate Bonds Shanghai Stock Exchange

On September 18, 2007, the Shanghai Stock Exchange issued its "Revised
Rules on the Listing of Corporate Bonds" (2007) (hereinafter as "the
Rules"). The Rules, which were effective immediately, replaced
regulations contained in "The Shanghai Stock Exchange's Rules on the
Listing of Enterprise Bonds."
The Rules are broader than the "The Shanghai Stock Exchange's Rules on
the Listing of Enterprise Bonds" but narrower than the provisions
contained in "The Trial Measure for the Issuance of Corporate
Bonds"(discussed above). Under the Rules, corporate bonds must have a
term of more than one year; also, corporate bond issues must be valued
at a minimum 50 million yuan; and, lastly, bond issues must be reviewed
by a credit agency and receive an "above average" rating.
The Rules also impose strict disclosure requirements for the issuers of
listed corporate bonds. Issuers will now be expected to file regular and
interim disclosure reports. Furthermore, where information for public
disclosure involves finance and accounting, law, asset evaluation, credit
rating and certain other items, it must be verified by certified

accountants experienced in securities related business and, as necessary,
other professional intermediary institutions (e.g. law firms, asset
evaluation firms, and credit rating institutions) and accompanied by a
formal written opinion from the reviewing institution.
If after the bonds are listed for trading the issuing company: commits
grave illegal acts, changes greatly and no longer comports with the
bonds' listing conditions, uses the capital raised through the issuance
in a manner that is inconsistent with the approved usage, fails to fulfill
the obligations on time in accordance with the measures for bonds
collections, or incurred a loss within the previous two years, the
Shanghai Stock Exchange shall stop trading and issue an opinion within
7 workdays as to whether to suspend future trading.
The Rules aim to perfect the listing process for corporate bonds and lower
the threshold listing requirements, thereby raising the frequency and
scale of corporate bond issuances in the future.

the formal start of chinese corporate debt issuance

The Trial Measure for the Issuance of Corporate Bonds
On August 2007, the China Securities Regulatory Commission
implemented a Measure for the Issuance of Corporate Bonds
terms on a number of points including:
issuance mode, issuance conditions, issuance procedures, supervision and
protecting bondholder rights and interests.
The Trial Measure's more innovative provisions include: removing the
requirement that issuers must provide a guarantee; removing the
requirement that financing capital be used for fixed asset investment
projects; allowing the price of corporate bonds to be fixed by the issuers
and the sponsors through a "Request for Quotation"; and allowing listed
companies to apply for approval of a phased issue.
The Trial Measure also imposes requirements on firms seeking to issue
corporate bonds. First, the firm's average annual profit in the last
three fiscal years cannot be less than the annual interest owed on the
bond issue; Second, after the issuance, the issuer's cumulative balance
of outstanding corporate bonds should not exceed 40% of its recent net
asset value; finally, financial firms should use methods relevant to the
financial industry to calculate the cumulative balance of their
outstanding corporate bonds.
The Trial Measure also provides special protections for bondholders
including: requiring the issuer to disclose relevant information
completely, timely and fairly; utilizing trustees to guard bondholder
interests; and requiring an issuer to convene a bondholder meeting when
situations arise that may affect important bondholder rights.
The Trial Measure is a very significant step. Among other benefits, its
provisions are expected to promote the development of China's overall
bond market, broaden channels of enterprise financing, enhance the level
of domestic direct financing activity and foster the evolution of a multi-level capital market.

The Chinese stock market shares type

Chinese firms typically have multiple classes of shares. One possibility is to distinguish shares
according to geographical locations: shares which can be traded by domestic investors (A-shares),
shares denominated in foreign currencies and reserved to foreign investors4 (B-shares) and shares of
companies listed or cross-listed overseas (H-shares, for those listed in Honk Kong). It is worth
noticing the residual role played by B-shares, whose market capitalization was about 3% of the capitalization of A-shares at the beginning of 2005
second is to distinguish shares according to the trading status, given that some shares
are nontradeable. NTS can be either State shares or restricted institutional shares and can only be sold privatelyState shares and individual shares.
At the beginning of 2006, NTS accounted for about 63% of the total number of shares outstanding.
NTS have the same cashflow and voting rights as tradeable shares in china.

what is H-shares and a-shares in China stock market

The China equity market is made up of several categories - red chips, H-shares, B-
shares and A-shares. Red chips refers to companies incorporated and listed in Hong
Kong with has at least 30% shareholding directly held either: mainland entities that
include state-owned organisations, provincial or municipal authorities in mainland China,
or companies that are controlled by mainland entities. Typically these businesses have
significant activities in China. H-shares are companies incorporated in mainland China
and listed on the Hong Kong Stock Exchange and other foreign stock exchanges. The B-
share market is made up of companies incorporated in mainland China that are traded in
the mainland B-share markets (Shanghai and Shenzhen). B shares are quoted in foreign
currencies. In the past, only foreigners were allowed to trade B shares, but since March
2001, mainlanders too can trade B shares. Finally, A-shares refers to companies
incorporated in mainland China that are traded in the mainland A-share markets. The
prices of A shares are quoted in Renminbi, and currently only mainlanders and Qualified Foreign Institutional Investors (QFII) are allowed to trade A shares

Chinese stock market Opening Price and Closing Price

The opening price of a security on a trading day is the first execution price of
such security on that day.

The opening price of a security is generated from a call auction. In case no
opening price is generated therefrom, the opening price will be generated from the
continuous auction.

The closing price of a security is the trading volume-weighted average price of
all the trades of such security during the one minute before the last trade (including
the last trade) on that day. In the absence of any trade on a trading day, the previous
closing price shall be taken as the closing price of that day.

Learn chinese Stock Market Trading mechanism Basics

Since December 16, 1996, an increase ceiling and decrease floor of 10% applies
to every stock during one-day trading. This practice says that the maximum stock

price during a trading day is 110% of the previous closing price; the minimum
stock price is 90% of the previous closing price.

(2) An A share applies a T+1 settlement policy
(3) For every trade of A-share stock, the minimum investment is 100 shares. The

actual number of shares purchased/sold for every trading is the integer times 100
shares. When the investment is less than Yuan 30 million, the maximum number

of shares traded is less than 100,000 shares. When the investment is more than

Yuan 30 million and less than Yuan 100 million, the maximum number of shares
traded is less than 200,000 shares. For every trade of B-share stock, the minimum

investment is 1000 shares. The actual number of shares purchased/sold for every
trading is the integer times 1000 shares. There is no maximum investment limit

for B-share stock.

(4) For A shares, the commission is smaller than or equal to 0.3% of the stock value,
and the minimum is Yuan 5. The stamp tax is 0.2% of the stock value. There is a

stock transfer fee, which is equal to 0.1% of the stock value. For B shares, the
commission is smaller than or equal to 0.3% of the stock value, and the minimum

is 1 U.S. dollar. The stamp tax is 0.2% of the stock value. There is a settlement

fee, which is equal to 0.05% of the stock value. For both A and B shares, there is
no income tax, such as a capital gains tax.

the increase ceiling and decrease floor of china stock Markets

Since December 16, 1996, an increase ceiling and decrease floor of 10% applies
to every stock during one-day trading. This practice says that the maximum stock

price during a trading day is 110% of the previous closing price; the minimum stock price is 90% of the previous closing price.

the Institution of the Chinese Stock market

The Chinese stock market consists of one regulator, two stock exchanges, one

clearing company, and numerous securities exchange companies. The China Securities
Regulatory Commission (CSRC) and the State Council Securities Committee (SCSC)

were established in 1993. They consolidated in 1998, and the China Securities

Regulatory Commission is now the regulator of the securities industry. The Shanghai
Stock Exchange and the Shenzhen Stock Exchange were established in December 1990.

By the end of 2003, there were 746 A shares and 54 B shares listed on the Shanghai
Stock Exchange and 489 A shares and 57 B shares listed on the Shenzhen Stock

Exchange. By the end of 2003, the Shanghai Stock Exchange had Yuan 2980.5 billion

(70.2%) total market capitalization, while the Shenzhen Stock Exchange had Yuan

1265.3 billion (29.8%) total market capitalization. In March 2000, the China Securities

Depositary and Clearing Company (CSDCC) was established as the central securities
clearing company.

what is the Calendar effect in China Stock Market

the Calendar effect in China Stock Market change over time. market participants seemed to be able to learn from past experience in that
they used trading strategies to exploit the calendar anomalies. Due to these
trading activities, the pattern changed over time. It is striking that the day-of-the-week effect follows a different pattern
compared to other market, as Mondays are considerably weak and Fridays
show significantly positive average returns. . A possible explanation for this phenomenon might be
that Chinese "amateur speculators" engage in short term lending before
the weekend and invest on the stock exchange. After these trades, the
funds are paid back. This explanation is somehow a guess but it fits to
our empirical findings and such speculations the effect is shifted to the Chinese year-end in February. Hence,
the February plays the same role as the December for US or European
investors. After the year-end, namely in March and April, average returns are by far higher compared to other months. weekly pattern that
considerable profits can be made shortly before the weekend starts. Corre-
spondently, the Chinese stock market reaches its peaks shortly before the
money is withdrawn, namely on Fridays. Considering the monthly effects,
one has to argue that it is likely that the money is withdrawn close to
the Chinese year-end in February and afterwards additional money flows
into the market. This could justify the observed monthly pattern show-
ing higher returns in spring compared to the month before the Chinese
year-end.

what is A-shares and b-shares of the China's Stock Market

In May 1992, the chinese State Council issued regulation that categorized the shares of a shareholding enterprise into three types:
(1) state and legal person shares, which are owned either directly or
indirectly by the state and which cannot be traded freely on the stock
exchanges but can be transferred only with administrative approval;
(2) A-shares, which are yuan-denominated and are available for trad-
ing by domestic private shareholders on the stock exchanges; and (3)
B-shares, which are available for trading by foreign investors in for-
eign currencies on the stock exchanges. This regulation effectively
institutionalized a unique feature of China's stock market¡ªthe crea-
tion of three distinct markets for the stocks of a listed enterprise,
namely, the one-way transfer market for state-owned shares, the A-
shares market for domestic private shareholders, and the B-sharesmarket for foreign investors

China's stock market unique features

First, the government used itlargely as a fundraising vehicle for funding state-owned enterprises, As a result, most listed enterprises were state controlled,
with only one-third of the enterprises' equity capital sold to private
shareholders during initial public offerings (IPOs). The other two-
thirds of the equity capital raised was held either by state asset man-
agement agencies or by SOEs themselves. In an effort to prevent the
loss of state control over listed enterprises, the government forbade
trading of state-owned shares on China's two exchanges, and the
shares could be transferred only after approval from state asset man-
agement authorities had been obtained, which made these shares
effectively nontradable. The transfer of state-owned shares to private
shareholders was rare in the 1990s. At the end of the 1990s, more
than 90 percent of the enterprises listed on China's two stock ex-
changes remained state controlled, with state-owned entities as their
controlling shareholders. The rapidity of the development of China's
stock market seems to suggest that a stock market (which is regarded
as the incarnation of capitalism) can coexist with state ownership
(which is regarded as the defining institution of socialism) and does
not necessarily require the presence of private enterprise.
Second, China's stock market developed under a repressed finan-
cial regime. Financial repression was created through a combination
of capital controls on international capital flows and administrative
measures imposed by the central government to dampen potential
competition among different financial assets (e.g., bank deposits, en-
terprise stocks, enterprise bonds, and various kinds of government
bonds) within the domestic financial sector. While the capital con-
trols helped to prevent capital from flowing out of the country, the
competition-mitigating administrative controls sought to avoid the
driving up of returns on various financial assets and thus to allow the
government to maintain a source of cheap capital for financing SOEs'
investments
Financial repression is therefore a disguised form of invest-
ment planning. In theory, this form of investment planning was to be
gradually phased out with the emergence of a stock market that
provided a forum for direct transactions between investors and fund
seekers. However, China's central government imposed a host of
administrative controls aimed at preserving its monopoly over the
uses of funds long after the emergence of the stock market, thus
grafting the socialistic investment planning institution onto the stock
market. Such a unique institutional structure is intriguing for studies
on financial repression as well as the functioning of stock markets.
Furthermore, the traditional economics literature generally views fi-
nancial repression as an obstacle that limits financial market devel-
opment, because, under a repressive financial regime, holders of fi-
nancial assets are not rewarded for real growth in their portfolios
The rapid growth of China's stock
market during its first decade seems to offer an interesting alternative
case study.
Third, China's stock market was developed under a weak legal
framework that offered shareholders little protection. On the widely
used indicators for shareholder rights protection developed by La
Porta et al. (1998), China scored 3, compared with the average score
of 3.61 for all other transitional economies (Pistor and Xu 2005: 191).6
The actual protection for shareholders in China, however, is lower
than what the index suggests because of the weak legal enforcement
in China (Tenev and Zhang 2002; Allen, Qian, and Qian 2005; Pistor
and Xu 2005). The development of China's stock market therefore
presents a puzzling case for economists and financial analysts who
hold that legal shareholder protection is a prerequisite for the devel-
opment of a functioning capital market (Shleifer and Vishny 1997; La
Porta et al. 1997, 1998; Pistor and Xu 2005).
This article attempts to explain how China was able to develop a
large, active, and technologically advanced stock market in the 1990s
while maintaining its salient socialistic institutions of state ownership
and monopolistic control over financial intermediation, and offering
shareholders only weak legal protection. I argue that the marriage of
socialism and capitalism took place when China's poorly regulated
stock market was becoming a venue whereby local governments and
SOEs issued shares to capture economic rents created by financial
repression, and traders bought and sold shares based on speculativemotives rather than investment value.