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Overview of the Chinese Stock Market

A lot of people want to invest in China because China has the 2nd largest economy in the world as measured by total gross domestic product. China's economy continues to grow, driven by technological innovation in areas such as electric vehicles, artificial intelligence, and renewable energy, as well as government stimulus measures. However, the Chinese stock market is complex and carries unique risks that investors should understand. This page will attempt to clarify how the Chinese stock market works.

Key Investment Risks

Before diving into the details, investors should be aware of the unique risks associated with Chinese stocks:

• Regulatory risk: Chinese authorities can implement sudden policy changes that significantly impact specific sectors or companies. The 2021 crackdowns on technology, education, and gaming sectors caused substantial losses for investors.
• Delisting risk: Chinese companies listed on U.S. exchanges face potential delisting under the Holding Foreign Companies Accountable Act (HFCAA) if audit inspection requirements are not met.
• VIE structure risk: Many U.S.-listed Chinese companies use Variable Interest Entity (VIE) structures that may not provide investors with direct ownership rights or legal protections.
• Geopolitical risk: U.S.-China tensions can impact market access, investment restrictions, and stock valuations.
• Economic transition risk: China's economy is undergoing structural changes, including a prolonged property market correction that affects consumer confidence and corporate earnings.

China's internal markets

China has 4 major stock markets:

• Shanghai
• Shenzhen
• Beijing (established 2021)
• Hong Kong

The Shanghai, Shenzhen, and Beijing stock exchanges represent China's "internal" or mainland stock markets. Historically, the Chinese government has wanted to isolate these markets from foreign investors, although the restrictions have been softened in recent years.

Mechanically, the way the government restricts outsiders from directly buying shares in these internal markets is by requiring Chinese companies to create special classes of common stock - some that can be owned by foreigners and some that can only be owned by Chinese. It's a concept unique to China.

Common stock shares known as "A shares" are traded in the Shanghai and Shenzhen markets and historically were only available to local Chinese investors. A shares are traded in the Chinese currency (the Renminbi).

Companies in these markets can also issue "B shares". B shares are common stock shares that are open to both Chinese mainland and foreign investors, and actually trade in a foreign currency. B shares trade in the US dollar in Shanghai and in the Hong Kong dollar in Shenzhen. Chinese citizens can buy B shares but obviously must have a foreign currency account to do so.

The B shares were supposed to be the way that foreigners would invest in Chinese companies, but the concept never really took off. Starting in the early 2000's, the Chinese government started to allow some foreign investors to buy A shares. Foreign institutional investors can buy A shares if they can qualify under one of two programs created by the Chinese government. But there are limits to these programs in terms of who can get a special license and how much they can trade on the exchanges.

But the primary way that foreigners can now buy A shares is using the "Stock Connect" program that exists between the Hong Kong, Shanghai and Shenzhen stock exchanges. The Shanghai-Hong Kong Stock Connect program started in 2014, followed by Shenzhen-Hong Kong Stock Connect in 2016. These programs allow international and mainland Chinese investors to trade securities in each other's markets through the trading and clearing facilities of their home exchange. In 2022, the program was expanded to include eligible ETFs. But not all A shares are included in the Stock Connect program, so access to A shares is still not totally open.

Since its launch, the Stock Connect program has expanded significantly. As of 2025, Southbound daily trading volumes through Stock Connect regularly exceed HK$40 billion, and the program has become a major source of liquidity for Hong Kong-listed stocks. The expansion of Stock Connect has also been driven by Chinese companies upgrading their Hong Kong listings from secondary to primary status, which makes them eligible for inclusion in the program and accessible to mainland investors.

The Shanghai Composite Index is the most common index that outsiders use to track the Shanghai stock market. The CSI 300 Index, which tracks the 300 largest stocks on both Shanghai and Shenzhen exchanges, has also become a popular benchmark for the mainland Chinese market.

Keep in mind that many of the Chinese companies traded on the internal stock markets are unique, in that they are government owned, with a minority portion of their stock traded on a public stock market. This is a result of China's economic policies that are unique in the world - a blended mix of limited economic freedoms within a communist country.

Beijing Stock Exchange

In September 2021, China established a third mainland stock exchange — the Beijing Stock Exchange (BSE). Unlike Shanghai and Shenzhen, which focus on larger companies, the BSE was specifically designed to serve innovative small and medium-sized enterprises (SMEs). As of 2025, the exchange has over 270 listed companies with a total market capitalization exceeding 900 billion yuan.

Nearly 80% of BSE-listed companies are SMEs, and over half are classified as national-level "little giants" — highly specialized firms with strong innovative capacity. The exchange has formed five primary industrial clusters: high-end equipment, information technology, consumer services, chemical and new materials, and biomedicine.

The BSE requires individual investors to have securities assets of at least 500,000 yuan and at least two years of trading experience. The BSE has its own index — the BSE 50 — which tracks the 50 largest and most liquid stocks on the exchange. Average daily trading volumes have grown significantly, reaching nearly 30 billion yuan in early 2025.

Hong Kong market

Until the year 1997, Hong Kong was a British colony with a thriving local, private economy. When China resumed sovereignty in 1997, Hong Kong became one of the most unique places in the world, as China has allowed Hong Kong to continue most of its previous economic policies under the "one country, two systems" framework. The Hong Kong stock market, which existed before 1997, reflects this unique history and status in the world.

The Hong Kong stock market is unique because it is made up of a combination of:

• Companies that are incorporated in Hong Kong and considered to be "Hong Kong" companies and not "Chinese" companies
• Hundreds of Chinese companies that have A shares listed on the internal markets that have also chosen to list "H shares" on the Hong Kong stock market
• Hundreds of Chinese companies that are only listed on the Hong Kong stock market

Many Chinese mainland companies with A shares also list their H shares in the Hong Kong stock market. This is primarily due to the desire to allow greater access to foreign investors, as there are no restrictions as to who can buy H shares on the Hong Kong market. Note that a Chinese company cannot issue both B and H shares. B shares were supposed to be the primary way for Chinese companies to reach out to foreign investors, but it never really turned out that way. H shares have become way more popular than B shares, which in a way undermined the whole point of the B share program. B shares have remained a marginal instrument with limited trading activity, as H shares and Stock Connect have become the preferred channels for foreign investment.

The Chinese companies that are only listed in Hong Kong consist of two types:

• State-owned Chinese companies that are incorporated outside the mainland (mostly in Hong Kong) with a majority of its revenue or assets derived from mainland China. These companies are referred to as "Red chips".
• Privately owned Chinese companies that are incorporated outside the mainland and with a majority of its revenue or assets derived from mainland China. These companies are referred to as "P chips".

Red chips are a little difficult to understand, because it is unclear why a Chinese government owned company would go to the trouble of incorporating outside of China and having its primary stock trade only in Hong Kong. We guess it just illustrates the complex nature of China's economy and political system. The P chips make more sense to us, as they are privately owned Chinese companies that wanted to be free of the restrictions associated with China's internal stock markets.

Hong Kong as a Delisting Hedge

In recent years, Hong Kong has positioned itself as a safe haven for Chinese companies facing delisting risks in the United States. Over 75% of U.S.-listed Chinese companies by market value now hold either a secondary or dual-primary listing on the Hong Kong Stock Exchange. This provides investors with an alternative trading venue should U.S. delistings occur.

Hong Kong has reformed its listing rules to accommodate returning Chinese companies, including allowing weighted voting rights structures that are popular among technology companies. For example, Alibaba converted its Hong Kong secondary listing to a dual-primary listing in August 2024, allowing mainland Chinese investors to access its shares through Stock Connect.

Hong Kong as a country

Despite its official status as a Special Administrative Region (SAR) of China, Hong Kong is still classified as a separate "country" or "market" by most index providers for investment purposes. So companies that are incorporated in Hong Kong or have their primary security listed in Hong Kong are classified as being from the country of Hong Kong, not China. Hong Kong, the "country", is considered by most index providers to be a "developed market", whereas China is considered to be an emerging market.

EWH, the iShares MSCI Hong Kong ETF, tracks an index of Hong Kong stocks only.

One of the most common indexes used to track the Hong Kong stock market is the Hang Seng Index. The Hang Seng Index, which includes the largest and most liquid stocks on the Main Board of the Stock Exchange of Hong Kong, includes both Hong Kong and Chinese companies.

Chinese ADRs listed on U.S. stock exchanges

There are approximately 286 Chinese companies that have shares traded on U.S. stock exchanges, either through American Depository Receipts (ADRs) or direct listings. The total market capitalization of these U.S.-listed Chinese companies exceeds $1 trillion. You can look at them by visiting our list of ADRs. In terms of the number of securities, China accounts for the largest number of ADRs of any country in the world.

An ADR is evidence of ownership of the common stock of a foreign company. The common stock can be either privately held or publicly traded somewhere in the world. Although a Chinese company that has an H share traded in Hong Kong can also have an ADR traded in the U.S, many times the ADR traded in the U.S. is the company's only publicly traded security.

Delisting Risks and the HFCAA

In 2020, the U.S. Congress passed the Holding Foreign Companies Accountable Act (HFCAA), which requires foreign companies listed on U.S. exchanges to allow the Public Company Accounting Oversight Board (PCAOB) to inspect their auditors. Companies that fail to comply for three consecutive years face mandatory delisting.

This law primarily affects Chinese companies, as Chinese regulations had historically prevented audit documents from being shared with foreign regulators. In 2022, China agreed to allow U.S. regulators limited access to audit documents in Hong Kong, temporarily easing delisting concerns. However, tensions remain, and the threat of delisting continues to influence how Chinese companies structure their listings.

Many Chinese companies have responded to these risks by establishing secondary or dual-primary listings in Hong Kong, which provides an alternative trading venue if U.S. delisting occurs. If a U.S. listing were to be delisted, investors who owned the Hong Kong-listed shares would still have a security trading on a major, regulated exchange.

VIE Structure Risks

Many Chinese companies listed on U.S. exchanges — particularly in technology and internet sectors — use a corporate structure known as a Variable Interest Entity (VIE). This structure was created to allow foreign investment in industries where Chinese law restricts or prohibits direct foreign ownership, such as internet platforms, telecommunications, and education.

When investors buy shares of a U.S.-listed Chinese company using a VIE structure, they are actually purchasing shares in an offshore holding company (typically incorporated in the Cayman Islands or British Virgin Islands) that has contractual arrangements with the actual Chinese operating company. Investors do not directly own equity in the Chinese business operations.

VIE structures carry significant legal risks: the contracts may be unenforceable under Chinese law, and the Chinese government could potentially invalidate these arrangements. While major companies like Alibaba, Tencent, JD.com, and Baidu use VIE structures, investors should be aware that this structure has never been formally approved by Chinese authorities. According to SEC guidance, changes in Chinese law could cause investors to suffer significant economic losses.

Chinese companies directly listed on U.S. stock exchanges

Additionally, many Chinese companies trade directly on U.S. exchanges without using an ADR structure. These are similar in nature to P chips, in that they are privately owned companies that are judged to be a "Chinese" company, but they have chosen to have their primary stock trade on a U.S. stock exchange (rather than in Hong Kong). What makes a company traded on a U.S. stock exchange a "Chinese company"? Some index providers will include in their "Chinese index" any company that is traded on a U.S. stock exchange, derives over 50 per cent of the revenue or assets of the company from China, and is controlled by a mainland Chinese entity, company or individual. These companies, along with ADR-listed firms, are collectively referred to as "N shares".

See also our list of Chinese companies that trade on U.S. stock exchanges.

Notable ETFs

In summary, there are basically four "buckets" of Chinese companies: Chinese companies traded on U.S. stock exchanges (mostly ADRs), Chinese companies traded in Hong Kong, Chinese A shares traded in Shanghai and Shenzhen (accessible via Stock Connect or A-share ETFs), and companies listed on the Beijing Stock Exchange (focused on innovative SMEs). There are U.S. ETFs that track indexes covering each of these buckets:

Name	Symbol	Last price	Currency	AUM	Expense ratio, %	Inception date
iShares China Large-Cap ETF	ARCX:FXI	35.82	USD	7,529,300,400	0.74	Oct 08, 2004
iShares MSCI China ETF	XNAS:MCHI	56.72	USD	5,695,541,940	0.59	Mar 31, 2011
KraneShares Trust KraneShares CSI China Internet ETF	ARCX:KWEB	29.71	USD	4,687,877,925	0.70	Aug 01, 2013
Xtrackers Harvest CSI 300 China A-Shares ETF	ARCX:ASHR	33.48	USD	1,142,209,823	0.65	Nov 06, 2013
Invesco China Technology ETF	XNYS:CQQQ	37.80	USD	718,891,200	0.65	Dec 08, 2009
SPDR S&P China ETF	ARCX:GXC	94.89	USD	425,610,000	0.59	Mar 20, 2007
WisdomTree China ex-State-Owned Enterprises Fund	XNAS:CXSE	38.04	USD	405,333,000	0.32	Sep 20, 2012
iShares MSCI China A ETF	BATS:CNYA	34.94	USD	283,037,760	0.60	Jun 16, 2016
Global X MSCI China Consumer Discretionary ETF	ARCX:CHIQ	19.53	USD	224,570,000	0.65	Nov 30, 2009
Franklin FTSE China ETF	ARCX:FLCH	22.74	USD	156,960,000	0.19	Nov 06, 2017
Invesco Golden Dragon China ETF	XNAS:PGJ	26.68	USD	151,960,080	0.50	Dec 09, 2004
KraneShares Bosera MSCI China A 50 Connect Index ETF	ARCX:KBA	30.00	USD	149,693,703	0.56	Mar 05, 2014
iShares MSCI China Small-Cap ETF	ARCX:ECNS	33.76	USD	64,577,520	0.59	Sep 29, 2010
KraneShares MSCI China Clean Technology Index ETF	ARCX:KGRN	27.17	USD	48,311,182	0.79	Oct 13, 2017
KraneShares MSCI All China Health Care Index ETF	ARCX:KURE	16.89	USD	39,992,968	0.65	Feb 01, 2018
Matthews International Funds Matthews China Active ETF	ARCX:MCH	27.08	USD	39,006,360	0.79	Jul 14, 2022
Rayliant Quantamental China Equity ETF	ARCX:RAYC	18.10	USD	32,246,651	0.80	Dec 31, 2020
VanEck China Bond ETF	ARCX:CBON	23.15	USD	24,526,150	0.51	Nov 11, 2014
KraneShares SSE STAR Market 50 Index ETF	ARCX:KSTR	19.62	USD	21,238,380	0.89	Feb 01, 2021
Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF	ARCX:ASHS	43.22	USD	18,051,024	0.65	May 21, 2014
VanEck ChiNext ETF	ARCX:CNXT	43.99	USD	13,708,565	0.65	Jul 24, 2014
KraneShares Hang Seng TECH Index ETF	ARCX:KTEC	13.86	USD	7,374,207	0.69	Jun 09, 2021

Investors should note that different ETFs have very different risk profiles. For example, KWEB's concentrated focus on internet companies makes it more volatile than broader market ETFs like MCHI. ETFs focused on A-shares (like ASHR) provide exposure to companies more tied to the domestic Chinese economy, while Hong Kong-focused ETFs include more internationally-oriented firms.