Table of Contents
Introduction
The Shenzhen Stock Exchange (SZSE): is located in Shenzhen, Guangdong Province, China. Established on December 1st, 1990 – one of the two stock exchanges independently operating in the People’s Republic of China. SZSE has grown rapidly over the past decades. Now, it is one of the largest stock exchanges in Asia.
Let us explore the origin and history of this stock exchange!
Overview of the Shenzhen Stock Exchange
The Shenzhen Stock Exchange (SZSE) is a Chinese stock exchange. It is based in Shenzhen, Guangdong. SZSE is China’s second-largest stock exchange after the Shanghai Stock Exchange. This exchange was established on November 1st, 1990, and opened for trading on July 3rd, 1991. It helps Chinese companies to get capital from both domestic and international investors.
As of March 2021, there are about 2,150 listed companies on SZSE. Their combined market capitalization is over US$3.7 trillion (yuan equivalent). The main board of SZSE lists equities and bonds. There are also two sub-markets – ChiNext® Board (GEM) and Sci-tech Innovation Board (STAR). ChiNext® is for high-tech enterprises. STAR Market focuses on tech-driven startups.
SZSE is gaining more investor confidence in the Chinese economy. As a result, it is expanding into international markets. These include Hong Kong and London’s Secondary Listing Scheme. As a result, SZSE is one of the most influential exchanges in the Asia-Pacific region.
History of the Shenzhen Stock Exchange
The Shenzhen Stock Exchange (SZSE) is one of two in China. It was established in 1991; SZSE is located in Shenzhen and ranks among four major stock exchanges. It offers to trade for stocks, bonds, mutual funds, and other securities.
It was founded as part of China’s economic reform. The exchange opened its first session on December 1st, 1991. It followed the Chinese government’s approval of four experimental market centers around mainland China. The operations of these markets were then merged into one exchange based in Shenzhen.
In its early years, most activities revolved around domestic Chinese trade. Overseas Institutional Investors (OIIs) limited foreign investors to small positions. Policies were implemented to attract them. These included:
- relaxing OII restrictions;
- introducing stocks indices;
- allowing foreign firms to issue stocks;
- margin trading;
- direct access to institutions; and
- an ‘inbound investment’ plan.
The SZSE has grown steadily into a significant international exchange. Millions of transactions take place each day. It’s highly regarded globally for its level playing field for foreign entities and domestic companies.
Pre-Establishment
Once upon a time, Shenzhen Stock Exchange was merely a non-profit organization. It was created in 1988 by eight local investors. This org was the foundation of the Stock Exchange. First, it researched to develop the Chinese equity market. Then, it was done to train the Chinese securities industry.
Early Developments in the Shenzhen Financial System
In 1980, the Shenzhen Financial System began to grow after the city embraced an open economic policy. It was marked by the official launch of the Shenzhen Stock Exchange (SZSE) in July 1990. Before that, two trial securities markets were operational but with limited functionality in 1986 and 1988.
China’s financial industry faced inadequate regulations, inexperienced management teams, and inexperienced participants. As a result, a reform movement was implemented to boost the stock exchange’s regulatory power and build an unmistakable atmosphere that would draw investors worldwide.
The SZSE also made changes to its policies regarding the listing of excellent SMEs, encouraging public companies’ international listings and giving investors more diversified markets for investing their funds. These changes had a big role in promoting rational investment activities and healthy competition in the industry.
The SZSE also unveiled multiple funding schemes, including:
- Venture capital funds
- Asset securitization tools (SPVs)
- Derivative products (stock index futures)
To provide investors with different options for risk management. These endeavors helped strengthen market regulations and make transactions more transparent. It increased access to services, created a level playing field for institutional investors, and provided small investors with functioning capital markets for a fair marketplace experience.
The Creation of the Shenzhen Stock Exchange
The Shenzhen Stock Exchange (SZSE) was formed on July 3rd, 1991. It is the second oldest exchange in China and the first in the country’s south. Its emergence symbolized a significant transformation in China’s financial markets from a centrally managed system to a socialist market economy.
Reforms made by Deng Xiaoping were instrumental in setting up SZSE. The reforms advanced economic development, competition, and streamlining of the Chinese economy. In addition, establishing the exchange provided companies with the capital to increase, enabling many businesses to become substantial national corporations.
The exchange was located in Shenzhen’s Qianhai district. Deng Xiaoping chose this district due to its proximity to Hong Kong and Macau and its history as a key foreign trade center. Initially, the exchange was controlled by Beijing-based regional authorities. Later, it was joined by a more prominent unified securities regulatory agency that monitored the entire Chinese capital market structure.
Establishing the Exchange
The Shenzhen Stock Exchange was born in 1990. The government labeled China as a Special Economic Zone just ten years after Shenzhen. It was created to modernize the Chinese economy and give international investors access to the rapidly growing Chinese economy.
In this article, we will look at the history and influence of the Shenzhen Stock Exchange on economic growth in China.
The First Listings on the Shenzhen Stock Exchange
The Shenzhen Stock Exchange, one of two in China, was set up on December 1st, 1990. It had 44 companies trading stocks. These included Great Wall Industry Corporation, Sinopec, and other big firms. By February 1991, 843 deals were done worth RMB 2.226 billion ($328 million).
It saw massive growth in the following years. By October 1994, a total of 474 companies had been listed. The monthly turnover was RMB 14 billion ($2 billion) – a considerable rise from RMB 2 billion in 1991. In 2000, the Nasdaq Composite Index went to a new high. Over the same five years (1995-2000), the Shenzhen Composite Index quadrupled!
In 2001, foreign investments were welcomed. The CSRC said 22 non-mainland Chinese companies could list on both exchanges. In addition, it opened up international capital markets to mainland citizens. The Shenzhen Stock Exchange continues to add new listings and announcements every day. It provides Chinese investors with more opportunities domestically and internationally.
Initial Regulations and Listing Requirements
In 1991, several local banks and businesses based in south China founded the Shenzhen Stock Exchange (SZSE). It was made to create an institution that would be a key part of reforming and opening up China’s equity markets. The SZSE officially opened on December 1st, 1990, following China’s Ministry of Finance instructions.
The regulations and listing requirements for the SZSE are different from its predecessor, the Shanghai Stock Exchange. For example, companies must have been running for three years, own assets worth at least RMB 5 million, and have passed a financial audit within three years of applying before they can list on the SSE.
China’s Securities Law sets out minimum requirements for SZSE listings. China’s industry regulating body, the State Council, has set standards. Companies must submit a prospectus that meets international standards and publicly disclose upon listing. In addition, foreign-invested entities must meet stricter minimum asset value requirements, which depend on the sector and location.
Expansion and Growth
The Shenzhen Stock Exchange was just a humble start in 1991. But, it has become a big part of the world financial scene. Through the years, it has gone through a lot of growth. Making its reputation known as an international exchange.
Here, we will look into the history of the Shenzhen Stock Exchange’s expansion and growth:
Evolution of the Shenzhen Stock Exchange
The Shenzhen Stock Exchange (formerly known as the Shenzhen Securities Exchange) is one of two stock exchanges in mainland China. It was established on July 3rd, 1990 – the first exchange created after China’s capital markets reform. Located in the growing city of Shenzhen, it became an important hub for Chinese companies to raise funds through IPOs.
Since then, the exchange has overgrown. By 2006, it had a combined market cap of ¥1.6 trillion (approx. US$200 billion), making it one of the largest in Asia. In 2007, it began trading options and launched an international trading platform.
New technologies like online investments and algorithmic trading enabled further growth and expansion into regional markets like Hong Kong. International agreements, such as with Singapore, diversified the investor base. In addition, international bodies, such as the World Federation of Exchanges (WFE), and trading alliances with other Asia Pacific exchanges increased liquidity.
The results were impressive. Average market capacity rose, and the number of listed companies and shareholders exceeded expectations. By 2020, there were 760 billion shares listed, with a total market cap of over 1 trillion.
The Introduction of the Shenzhen-Hong Kong Stock Connect
The Shenzhen-Hong Kong Stock Connect, or simply “Stock Connect,” was introduced in 2014. This program was created to promote economic ties between mainland China and Hong Kong. It allowed individuals with legal identification to buy shares in companies listed on each other’s exchanges.
This program required rigorous requirements to be met to standardize regulations. As a result, the Shenzhen Stock Exchange issued new guidelines such as setting up securities accounts, approving repatriated earnings, and allowing foreign firms to fund activities from a non-Chinese currency bank account. Due diligence requirements were also applied.
Since its launch, Stock Connect has expanded. It includes 871 eligible stocks across 12 Chinese exchanges, including the ChiNext board. Moreover, institutional investor participation is gradually increasing, so the market could expand further eastward in future years.
Conclusion
The Shenzhen Stock Exchange was formed, and since then, it has bloomed into one of the most significant stock exchanges in the entire world. It is now considered one of the biggest exchanges by market capitalization and an important figure in China’s capital markets.
The Shenzhen Stock Exchange is an integral part of China’s economic advancement. It is a significant source of impetus for China’s finance industry.
This article has explored the Shenzhen Stock Exchange’s history and role in the global financial markets.
Summary of the Shenzhen Stock Exchange’s Development
The Shenzhen Stock Exchange (SZSE) was founded in 1991. It is one of the biggest stock exchanges in China, situated in the world’s most rapidly developing financial center, Shenzhen. This exchange significantly impacts the betterment of China’s capital markets system. It delivers efficient and trustworthy price formation services for investors and helps to form the capital market and promote the combined growth of multiple financial markets.
Since its establishment, the SZSE has regularly improved its regulatory environment and operating and maintenance systems. It has increased efforts to monitor risks and intensified reform initiatives while offering enhanced services for listed companies. In 2008, listing new innovative elements accelerated technological innovation and technological improvement in the industry. The New Third Board Trading System reform was created to raise capital investment proficiency. New techniques were used to strengthen corporate governance standardization. Further reforms have been adopted to speed up industry transformation into SMEs with transparency. Also, various steps have been taken, such as increasing funding support, to assist in the growth of innovation capacity that recognizes economic revolution endeavors.
After more than 20 years, the SZSE now plays a critical role in improving China’s financial market. It provides financing services to many small and medium-sized companies through IPOs, along with other secondary market activities such as convertible bonds issuance or trading of shares on an exchange, done by all types of investors.
The Future of the Shenzhen Stock Exchange
The Shenzhen Stock Exchange is predicted to be one of the future’s most significant stock exchanges worldwide. Its performance has been spectacular and remains an essential part of Asia’s financial system with help from solid regional bodies.
E-commerce is becoming popular in the economy. It should continue in 2021, with more people getting into online trading. It means more investors will invest in the Shenzhen Stock Exchange, making it even more influential. Furthermore, fintech applications will be used more in China’s capital markets, attracting even more investment.
The Sindhuan Stock Exchange looks very promising for 2021 and beyond – domestic and foreign investors can expect great returns.
