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Market Avenue

Securities Market 20 Years on
Securities Market 20 Years on
UPDATED: November 30, 2010 NO. 48 DECEMBER 2, 2010
The Making of China's Securities Market

First stock exchange

On December 19, 1990, the Shanghai Stock Exchange (SSE) was inaugurated with trading on 30 bonds and eight stocks. SSE General Manager Wei Wenyuan borrowed 5 million yuan ($753,000) from the People's Bank of China to build the bourse.

First B share

In November 1999, the Shanghai Vacuum Electron Devices Co. Ltd. issued 1 million yuan ($149,250) in special shares, or B shares, with a par value of 100 yuan ($15) to overseas investors.

Deng's endorsement

In January 1992, late Chinese leader Deng Xiaoping visited the Shenzhen Stock Exchange (SZSE) and said, "Our experiments in Shanghai and Shenzhen have been successful. So it seems that some capitalist products could also apply in a socialist society."

Deng's remark offered encouragement to the stock market, which has developed rapidly ever since.

8/10 incident

On August 6, 1992, the SZSE announced it would be distributing 5 million subscription forms representing 500 million yuan ($75.3 million) in quotas for an upcoming IPO. More than 1.2 million people from across China flocked to Shenzhen to buy the forms.

On August 10, the forms were sold out, but very few investors had actually acquired them. Investigations found this was due to fraudulent practices. That night, thousands of furious investors marched on the streets, and engulfed the Shenzhen government office.

In the wake of the incident, China suspended IPOs for one year.

CSRC established

In November 1992, the China Securities Regulatory Commission (CSRC) was established, with Liu Hongru appointed as the first chairman. The CSRC served as an authoritative supervisor and regulator of China's securities market.

First hostile takeover

On September 13, 1993, the Shenzhen-listed China Bao'an Group Co. Ltd. (Bao'an) started secretly acquiring stocks from Shanghai Yanzhong Industrial Co. Ltd. (Yanzhong) on the secondary market. On September 30, 1993, Bao'an declared its holdings of Yanzhong's shares surpassed 5 percent, but actually it owned 15.98 percent by that day.

To retain its controlling stake, Yanzhong hired the Schroeder Investment Management (Hong Kong) as an advisor for its anti-takeover strategy, and it also reported the incident to the CSRC.

On October 22, 1993, the CSRC confirmed that the takeover was a market behavior and the shares purchased by Bao'an were valid. As a result, Bao'an acquired the controlling stake of Yanzhong, but was fined 1 million yuan ($150,600) for violating information disclosure rules.

327 T-bond incident

February 23, 1995 was the darkest day in China's securities history.

In 1992, China had issued 24 billion yuan ($3.6 billion) in Treasury bonds (T-bonds) coded "327" that were set to mature in June 1995. Upon reaching maturity, the bonds were to be repaid with interest and discounts that reflected inflation.

Guan Jinsheng, then General Manager of the Wanguo Securities Co. Ltd. (Wanguo), expected inflation to dip and estimated that the 327 T-bonds with a par value of 100 yuan ($15) would be repaid at 132 yuan ($20). When the bond's market price hovered around 148 yuan ($22.3), Wanguo decided to hold a short position of the 327 T-bond contracts.

In striking contrast, the China Economic Development Co. Ltd., a wholly owned subsidiary of the Ministry of Finance (MOF), held a long position, expecting the government to raise the bond's discount rate.

On February 23, 1995, the MOF announced that it would repay the bond at 148.5 yuan ($22.4). This news pushed up the bond's price to 151.98 yuan ($22.9). In a desperate attempt to recoup its losses, Wanguo sold an astonishing 1.46 trillion yuan ($220 billion) worth of 327 T-bonds eight minutes before the market closed, dragging its price down to 147.4 yuan ($22.2).

But the SSE announced that the contract sales in the last eight minutes were invalid, leading to 5.6 billion yuan ($843.4 million) in losses for Wanguo.

Because of the incident, Wei Wenyuan, then General Manager of SSE, was removed from office for a lack of regulation. Guan Jinsheng was imprisoned and Wanguo was merged into Shenyin Securities Co. Ltd.

Securities Law

In December 1998, the Securities Law of the People's Republic of China was endorsed by the National People's Congress, and came into effect on July 1, 1999.


On November 5, 2002, the People's Bank of China and the CSRC jointly released the Provisional Measures on Administration of Domestic Securities Investments of Qualified Foreign Institutional Investors (QFIIs). In May 2003, the first five QFIIs including the UBS, Nomura Securities, Citigroup Global and Morgan Stanley, received the green light for a total of $775 million of investment quotas.

Split share reform

When many SOEs went public, only a minority of their shares were tradable, and a large volume were non-tradable, which was called the split share structure. So the SOEs cared less about their share prices and interests of the small shareholders.

As a result, the government in 2004 kick started the split share reform to float a huge number of non-tradable shares.

The reform had been completed by 2006, removing a system barrier for development of the securities market.

SME board

The small and medium-sized enterprise (SME) board opened on June 25, 2004, at the SZSE, hosting companies with no more than 100 million shares.


The growth enterprise board ChiNext was launched on October 30, 2009, to provide financing to technology and innovation-driven startup companies.

Stock index futures

After four years of preparation, the country on April 16, 2010, introduced its first stock index futures—China Securities Index 300 futures. It gave investors a mechanism to profit from declines in stock prices, allow them to hedge risks and help ease market fluctuations.

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