Since first coming to power in 2012, Xi Jinping has preached economic reform as the way to achieve the Chinese Dream. Some of the reform measures are aimed at deepening China’s financial markets and giving stock markets a greater role in financing corporate investment.
Considered home to the deepest financial markets in the world, the U.S. may have just the blueprints for the kind of stock market development the Chinese government is looking to foster. We provide an overview of the U.S. and Chinese stock markets with some of the unique differences between the two.
Key Takeaways
- Chinese stock markets are much younger than those in the U.S.
- U.S. stock exchanges are larger than their Chinese counterparts.
- China’s stock markets are not heavily connected to the economy at an individual and corporate level, whereas those in the U.S. are very connected.
- Institutional investors play a dominant role in U.S. markets, while Chinese markets are dominated by retail investors.
- Chinese markets are primarily owned by Chinese investors while U.S. markets have a mix of local and international investors.
China’s Stock Markets vs. U.S. Stock Markets: The Beginnings
China’s stock markets are relatively young compared to the U.S. markets. The Shanghai Stock Exchange (SSE) dates back to the 1860s. It was shuttered in 1950 following the 1949 Communist rise to power. The exchange reopened in 1990. The Shenzhen Stock Exchange (SZSE) also opened that same year.
Hong Kong operates as a politically autonomous region from mainland China. While the Hong Kong Stock Exchange (HKG) was founded in 1891, but only began listing the largest Chinese state-owned enterprises in the mid-1990s.
The U.S. stock market, on the other hand, is more than two centuries old. The New York Stock Exchange (NYSE) evolved from the signing of the Buttonwood Agreement on Wall Street in 1792. It went through several changes before emerging in 1863 under its current name.
Since that time, several other stock exchanges were established in the U.S. The Securities and Exchange Commission (SEC) lists 24 registered national securities exchanges. The Nasdaq, which was established in 1971, is the second most important exchange after the NYSE.
The Stock Exchanges
The tables below highlight some of the key statistics of the major stock exchanges in China and the United States. All figures are current as of Dec. 31, 2023, according to the World Federation of Exchanges.
| China Stock Exchanges | |||
|---|---|---|---|
| SSE | SZSE | HKG | |
| Market Capitalization | $6.52 trillion | $4.29 trillion | $3.97 trillion |
| Number of Listed Companies | 2,263 | 2,853 | 2,609 |
| Electronic Order Book Value of Share Trading | $971.79 billion | $1.39 trillion | $164.73 billion |
| U.S. Stock Exchanges | ||
|---|---|---|
| NYSE | Nasdaq | |
| Market Capitalization | $25.56 trillion | $23.41 trillion |
| Number of Listed Companies | 2,272 | 3,432 |
| Electronic Order Book Value of Share Trading | $2.38 trillion | $2.10 trillion |
Stock Markets’ Role in the Economy
Despite being some of the largest exchanges in the world, China’s stock markets are still relatively young and do not play as prominent a role in the Chinese economy as American exchanges do in the U.S. economy.
Further, whereas U.S. companies depend heavily on equity financing, only a small percentage of total corporate financing in China is funded by equity. Chinese corporations rely much more heavily on bank loans and retained earnings. There have been some recent efforts to begin using more equity financing in China.
U.S. stock market activity is heavily influenced by large, institutional investors. Smaller investors, though, are more likely to buy stocks than those in China. Stocks make up a large part of household wealth in the U.S., with roughly 61% of the population investing in equities. Property, wealth management products, and bank deposits make up a greater proportion of investments in China.
Stock markets play a much larger role in the U.S. economy than in China at both the individual investor and institutional levels. While this means that China’s economy remains relatively protected from disruptive ups and downs in the stock market, it also means that companies remain limited in financing opportunities, a factor that can inhibit overall economic growth. It has also led to over reliance on debt financing.
India’s stock market became the fourth-largest in the world on Jan. 23, 2024, taking over the spot from Hong Kong’s stock market. The market cap of Indian stock markets was $4.33 trillion compared to Hong Kong’s $4.29 trillion, according to Bloomberg. Stock market capitalization in India hit the $4 trillion mark for the first time on Dec. 5, 2023.
Stock Markets as a Tool for Economic Growth
The U.S. economy and stock market are closely linked. Through the market U.S. companies raise money by selling shares. The economy’s strength or weakness affects levels of consumption which in turn affects the performance of companies and therefore the stock market. China’s stock markets, on the other hand, have often been likened to a casino, dominated by unsophisticated retail investors gambling their wealth rather than looking for long-term sound investments.
The influence of retail investors in China’s stock market has been declining over the last two decades with institutional investors’ holdings on the rise. In 2003, institutional investors held just 0.95% of China’s market capitalization. This rose to over 50% by 2019. Despite this gigantic rise, China’s markets are still more controlled and influenced by retail investors than those in the United States.
Studies indicate that increasing the proportion of professional and institutional investors relative to ordinary retail investors helps to improve the quality and efficiency of stock markets. This seems to make sense as professional investors are much more adept at analyzing fundamental values instead of being motivated by fear and irrational exuberance.
Openness to Foreign Investment
Unlike the U.S. and every other major stock market in the world, the Chinese markets restrict foreign investment. Foreign investors hold only a small percentage of Chinese market capitalization. In December 2023, China’s market capitalization was $10.89 trillion, with foreign investors holding over $600 billion in Chinese stocks.
China’s stock shares are divided into three separate categories:
- A Shares: This class of shares is primarily traded amongst domestic investors on the Shanghai and Shenzhen exchanges, although Qualified Foreign Institutional Investors (QFII) are also allowed to participate by special permission.
- B Shares: These shares are primarily traded by foreign investors in both markets but are also open to domestic investors with foreign currency accounts.
- H Shares: This category of shares is permitted to be traded by domestic and foreign investors alike and is listed on the Hong Kong exchange.
Even though China’s stock markets are becoming more open to foreign investments, international investors remain wary of taking advantage of Chinese shares. This is largely due to a lack of consumer confidence, economic conditions in the country, geopolitical concerns, and the ease of trading among other reasons.
How Can Foreign Investors Invest in Chinese Companies?
Investing directly in Chinese companies through China’s stock exchanges can be tricky. But there are several other ways to invest in Chinese companies as a foreign investor. Some Chinese companies trade on U.S. stock exchanges as American depositary receipts (ADRs). These securities usually represent a single share in the company and trade on U.S. exchanges like domestic stock. You can also buy shares of exchange-traded funds (ETFs) and/or mutual funds that have Chinese companies in their portfolios.
What Is the World’s Oldest Stock Market?
The world’s oldest stock exchange is the Amsterdam Stock Exchange in the Netherlands. The exchange opened in 1602 alongside Verenigde Oost-Indische Compagnie or the Dutch East India Company, which was the first company to go public and trade on an exchange. The exchange still operates today under the Euronext brand.
What Is China’s Largest Stock Exchange?
China’s largest stock exchange is the Shanghai Stock Exchange. As of December 2023, its market cap was $6.52 trillion, and had 2,263 listed companies.
The Bottom Line
Despite having extremely large total market capitalizations by international standards, China’s stock markets are still quite young and play a less significant role than they do in the United States. As equity financing can be a significant factor for economic growth, China has much to gain from fostering further development of its markets. Giving greater access to foreign investors is a step towards deepening its financial markets, but the main hurdle will be overcoming investors’ lack of confidence.
Correction—Jan. 30, 2023: A previous version of this article contained incorrect figures for the Hong Kong Stock Exchange. It has been edited to provide the correct market capitalization and number of listed companies.