H-shares are investment shares listed in Hong Kong currency and subject to Chinese law. Mainland Chinese citizens are legally prohibited from investing outside of China A and B shares, but can invest in H-shares. Hong Kong citizens are prohibited from investing in mainland Chinese stocks.
H-shares are investment shares offered by Hong Kong through its stock market, and they differ greatly from other Chinese stocks. While Chinese law is used to regulate and control H shares, the shares themselves are listed in Hong Kong currency. As of 2011, mainland Chinese citizens are normally legally prohibited from investing outside of China A and B shares, but mainland citizens can also invest in these. International investors are also open to Hong Kong-based stocks. For a company to be listed on the Hong Kong stock market, it must be registered on the mainland.
Hong Kong has its own stock market, which in many ways operates separately from the mainland Chinese stock market. While there are many differences and exceptions to this stock market, the Hong Kong stock market and its associated H shares are still subject to Chinese law. At the same time, many of the restrictions imposed on the mainland Chinese stock market are not enforced on the Hong Kong stock market.
The Chinese mainland and Hong Kong have separate currencies, even though Hong Kong is part of China. For this reason, H-shares are quoted in Hong Kong currency. The legal status and trading characteristics of H-shares also more closely resemble other native Hong Kong financial instruments that mainland China does not feature or support.
China’s political position means that most mainland Chinese citizens are legally prohibited from investing outside of China’s native A and B shares. After 2007, China allowed mainland citizens to buy H-shares, which caused the market to expand significantly. At the same time, Hong Kong citizens are, as of 2011, prohibited from investing in the mainland Chinese stock market. H-shares are also open to international investors, who have previously been prohibited from investing in Chinese markets or have had their investment opportunities severely restricted.
There are many companies on the Hong Kong stock market that are eligible to sell H-shares, and most of the Chinese companies are listed here. To be eligible, even though the shares are in Hong Kong, the business must be incorporated and registered on the mainland. The business must also meet other requirements to legally sell these shares, but the other requirements are based on what the business sells and its size, among other factors. A company may list for H, A, and B shares at the same time, but the price of each may be different.
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