Chinese Equity Securities

Abstract

The story of equity securities in China involves more than simply Chinese companies issuing shares to investors. Before there could be shares, there had to be companies and these companies had to have equity capital represented in the form of shares. Prior to the reform efforts of the 1980s it is fair to say there were no companies in China, there were state-owned enterprises, or SOEs, and there were factories (gongchang). These were the production units of the centrally-planned economy. With a loosely defined collection of assets ‘owned by the State on behalf of all of the people’, they had no independent legal status and none of what industrial economies consider to be those characteristics associated with property. For example, there was no ability to confer rights associated with ‘ownership’ on any party. Indeed, the entire thrust of the government’s political program up to 1979 had been to eliminate all such aspects of ownership. Thus, all production, revenue and surplus belonged to the state and not the producing enterprise. Investment projects relating to a given SOE were designed and funded by government entities. There was little management independence other than to implement the plan as it was handed down. But this is a well-known story.