Property Rights Exchanges in China
Takeshi Jingu
Senior Analyst,
Chief Representative, Beijing Representative Officeof Nomura Institute of Capital Markets Research

I.

Introduction

China’s property rights exchanges 1 are markets specifically for trading property
rights. The country now has more than 200 such exchanges. In October 2003 theThird Plenary Session of the 16th Central Committee of the Communist Party of
China announced its Decision on Some Issues Concerning the Improvement of theSocialist Market Economy. This defines “property rights” as including “rights overthings, creditor’s rights, stockholder’s rights, and intellectual property rights.” This
important document deals with financial reforms and capital market reforms ingeneral, and paved the way for the later reforms to China’s capital markets.
When these exchanges were first established in the late 1980s, their role was tofacilitate the transfer of state-owned assets as part of the process of reforming China’s
state-owned enterprises. In this regard, they can be compared to the stock markets
established in 1990, whose role was to provide finance for state-owned enterprises. In
recent years, however, more attention has been paid to ensuring that, like China’s
capital markets, which are being reformed, the property rights exchanges have aproperly functioning market mechanism. We also expect these exchanges to attract
growing interest from private equity investors as well as on account of the role they
can play in creating multilayer capital markets, which the China Securities Regulatory
Commission (CSRC) has been trying to establish as part of the process of reforming
the capital markets.

II. The development of property rights exchanges thus far
First, we review the development of property rights exchanges thus far. Theseexchanges came into being during China’s transition from a planned economy to amarket economy. Their role was to enable the transfer of state-owned property rights
in restructuring local state-owned enterprises or injecting private capital into them aspart of the reform of state-owned enterprises. As a result, the public sector was closely
involved in the creation of these exchanges.
1

Property rights exchanges are sometimes called “equity exchanges” or “asset and equity
exchanges.”

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Nomura Journal of Capital Markets Spring 2009 Vol.1 No.1

The first property rights exchange was established in Wuhan in 1988. In thefollowing 12 months, 25 such exchanges were established all over China. At this stage,
the government was still responsible for deciding the price and other terms of the saleof state-owned property rights. It was only during the period of economic
development that followed Deng Xiaoping’s famous speech during his tour of south
China in early 1992 that these exchanges came into their own as markets. More than
200 were established all over China. However, the rapid increase in the number of
exchanges led to a lack of control over how property rights were traded and to thestripping of state-owned assets. The State Council (China’s Cabinet) therefore
suspended the trading of property rights in April 1994.
Although the exchanges were allowed to reopen in 1995-96 after the State Council
strengthened supervision of the sale of state-owned property rights and theirregistration, more stripping of state-owned assets occurred, this time on a massive
scale, as a result of trading in the shares of unlisted companies2. In 1998, the StateCouncil closed the exchanges concerned on the grounds that they had been involved
in illegal over-the-counter trading. This affected the development of the remaining
property rights exchanges3.
The subsequent decision by the CSRC to require the property rights exchanges toobserve the three principles of “non-divisibility,” “non-continuity,” and “nonstandardization” prohibited the exchanges from dividing up state-owned assets,
packaging them as standardized products, and trading these products continuously. As
well as preventing the stripping of state-owned assets, this drew a distinction between
property rights exchanges and normal capital markets that still exists today.
Following the restructuring of 1998 and partly as a result of the government’s
policy of fostering the development of high-tech companies, technological property
rights exchanges were established in many locations. After 2002, partly as a result ofChina’s accession to the World Trade Organization, economic reform and therestructuring of state-owned enterprises gathered momentum, bringing with themmore restructuring and M&A activity. This, in turn, led to a revival of the property
rights exchanges. In 2002, seven property rights exchanges, including those in Beijing
and Tianjin, set up a regional market for property rights transactions, the North United
Assets and Equities Market (NUAEM)4.
In 2003, following the restructuring of government departments, the State-owned
Assets Supervision and Administration Commission (of the State Council) (SASAC)
was formed. This addressed the issue of how to supervise and administer state-owned
assets such as state-owned enterprises by concentrating the responsibility for this in

2

3

4

In China, strictly speaking, a distinction is made between "shares" in a joint stockcompany and "equity" in a limited liability company. In this report, however, the two arenormally referred to as "shares."This and the preceding paragraph are based on Shanghai Guozi (2008) and Liu and Wei(2007).
See Ma, Gao, Zhang, and Chen (2003), and Ren (2008).

Property Rights Exchanges in China

2

SASACs at both central and local government level5. During the same year, a series ofrules and regulations was issued which governed the separation of state-owned
enterprises’ core and peripheral activities, the appraisal of those responsible formanaging central state-owned enterprises, and the reform of state-owned enterprises(e.g., by means of restructuring, mergers, transformation to a joint stock company, andincreasing the nonstate sector’s ownership ratio by selling shares in and increasing thecapital of state-owned enterprises). Moreover, in October 2003, the Third Plenary
Session of the 16th Central Committee of the Communist Party of China defined“property rights” as including “rights over things, creditor’s rights, stockholder’srights, and intellectual property rights.” These developments accelerated the reform ofstate-owned enterprises and made it easier to trade property rights.
In December 2003, SASAC and the Ministry of Finance jointly issued theProvisional Rules on the Administration of the Transfer of State-owned Property
Rights in Enterprises with effect from 1 February 2004 (see below for further details).
These rules, which lay down a standard procedure for transferring state-owned
property rights and are still in force, have played an important role in the developmentof property rights trading in China. In August 2004, SASAC issued a circular entitledIssues Relevant to the Transfer of State-owned Property Rights in Enterprises,
clarifying these rules.
Since then, the property rights exchanges have grown rapidly, with trading more orless doubling in value from around RMB100 billion in 2003 to around RMB200
billion in 2004, and rising further to around RMB360 billion in 2007. As well as
growing in size, the exchanges have also become more diversified. Local
governments throughout China have begun to do more to encourage venture capitaland high-tech investment. One example of this is the creation of the Zhongguancun
Technological Property Rights Exchange in Beijing in 2003.
Further examples are the creation of the China Beijing Environment Exchange andthe Shanghai Environment and Energy Exchange in August 2008, and that of the
Tianjin Climate Exchange in September 20086.

III. Current state of property rights exchanges and the rules
governing them
1. Current state of property rights exchanges
China now has more than 200 property rights exchanges. Of these, the Shanghai
United Assets and Equity Exchange, the China Beijing Equity Exchange, the Tianjin
5

6

3

Although state-owned assets are owned by the state, responsibility for this has been
divided among a number of government departments. Therefore, in order to improve theway these assets are managed, responsibility was concentrated in central and local
SASACs. See Jingu and Ri (2003).
The China Beijing Equity Exchange has a stake in the China Beijing Environment
Exchange , while the Chicago Climate Exchange and the Tianjin Property Rights
Exchange etc. have a stake in the Tianjin Climate Exchange .

Nomura Journal of Capital Markets Spring 2009 Vol.1 No.1

Property Rights Exchange, and the Chongqing United Assets and Equity Exchange
are recognized by SASAC as “central-level” exchanges and permitted to trade theproperty rights of central state-owned enterprises (i.e., those supervised by the central
government). In addition to these there are 65 “province-level” exchanges selected by
the SASACs of each province, autonomous region and municipality, while the rest arereferred to as “prefecture-level” exchanges7. In recent years there has been a movetowards integrating exchanges, with exchanges belonging to the same regional market
sharing information, for example. There are four such regional markets: the Yangtze
River Basin Regional Property Rights Common Market, centered on the Shanghai
United Assets and Equity Exchange; North United Assets and Equities, centered on
the Tianjin Property Rights Exchange; the Huang He River Basin Regional Property
Rights Market, centered on the Qingdao Property Rights Exchange; and the Western
Regional Property Rights Market, centered on the Western Assets Exchange8.
The total number of transactions conducted on China’s property rights exchanges
in 2007 was 35,958 (compared with 33,541 in 2006), while the total value of thesetransactions was RMB358.2 billion in 2007 (compared with RMB319.3 billion in2006) (Figure 1). In this connection, it is perhaps worth pointing out that the total
value of transactions on China’s A share markets was RMB45,477.1 billion in 2007
(partly as a result of an overheated market) and RMB8,921.7 billion in 2006. As wewill see, property rights transactions tend to be one-offs, so it is also worth pointing
out that RMB772.3 billion of funds was raised on the A share markets by means of
IPOs and capital increases in 2007 and RMB246.4 billion in 2006. The property rights
exchanges derive their income from membership fees and trading commission9.

Figure1: Transactions on China's property rights exchanges (2007)(number of transactions, RMB100mn)
Number of
Value of
Share (%)
Share (%)
transactionstransactions
Yangzi River Basin Regional Property Rights Common
North United Assets and Equities Market (NUAEM)
Other

20,821
9,097
6,040

57.9
25.3
16.8

1,766.6
1,429.6
385.8

49.3
39.9
10.8

Total

35,958100.0

3,582.0

100.0

Source:789Nomura Institute of Capital Markets Research, based on Zhongguo Chanquan
Shichang Nianjian 2008.

Chinese local government operates at four different levels. In descending order, these are
the provinces, the prefecture-level cities, the county-level cities and counties, and thetownships.
See the China Beijing Equity Exchange's website at http://www.cbex.com.cn/
In the case of the China Beijing Equity Exchange, the commission on a transaction worth
RMB10 million or less is 0.2%; on a transaction worth more than RMB10 million but not
more than RMB100 million it is 0.1%; and on a transaction worth more than RMB100
million it is 0.05%. Both parties to a transaction have to pay commission.

Property Rights Exchanges in China

4

A geographical breakdown reveals that 57.9% of transactions in terms of number
and 49.3% in terms of value are accounted for by the Yangtze River Basin Regional
Property Rights Common Market, while 25.3% in terms of number and 39.9% interms of value are accounted for by the North United Assets and Equities Market(Figure 1). Furthermore, a breakdown of each of the property rights exchanges bytrading value reveals that the top five exchanges account for three quarters of the total,
with the Shanghai United Assets and Equity Exchange accounting for RMB95,690
million, the China Beijing Equity Exchange for RMB64,370 million, the Wuhan
Optics Valley United Property Rights Exchange for RMB34,690 million, Guangzhou
Enterprises Mergers & Acquisitions Services for RMB34,670 million, and the Tianjin
Property Rights Exchange for RMB34,000 million (Figure 2).

Figure2: Top five property rights exchanges in terms oftransaction value (2007)
Exchange
Shanghai United Assets and Equity Exchange
China Beijing Equity Exchange
Wuhan Optics Valley United Property Rights Exchange
Guangzhou Enterprises Mergers & Acquisitions Services
Tianjin Property Rights Exchange
Top five (subtotal)
Total

Source:(RMB100mn）
Transaction Share (%)
956.9
26.7
643.7
18.0
346.9
9.7
346.7
9.7
340.0
9.5
2,634.2
73.5
3,582.0

100.0

Nomura Institute of Capital Markets Research, based on Zhongguo Chanquan
Shichang Nianjian 2008.

Actual transactions (taking the China Beijing Equity Exchange as an example)
include the transfer by auction of state-owned enterprises that have failed, the transferof shares held by asset management companies as a result of debt-equity swaps(AMCs acquired shares in a corporate borrower in exchange for nonperforming loans
which they had purchased from banks), the agreed transfer of some of a state-owned
enterprise’s operations (e.g., a subsidiary) to enable it to concentrate its resources on
its main business, and the transfer by auction of equity in a wholly state-owned
enterprise to foreign investors in order to diversify its shareholder structure. They areused in this way with state-owned enterprises to deal with failures, the disposal of bad
debts, restructuring (e.g., of subsidiaries), and changes in ownership structures. They
are also used to transfer shares in private companies, for example10.
As a percentage of trading value, trading in state-owned property rights has
declined from 80.04% in 2005 to 76.26% in 2006 and 59.08% in 2007 (Figure 3). It is
reckoned that over the next 3-5 years at least a third of the central government’s stateowned assets will have to be restructured in some way (e.g., to enable state-owned
enterprises to concentrate their resources) and that this constitutes approximately

10

In the case of the China Beijing Equity Exchange.

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Nomura Journal of Capital Markets Spring 2009 Vol.1 No.1

RMB2 trillion in latent demand for such transactions11. In the longer term, however,trading in state-owned property rights is expected to decline as the reform of stateowned enterprises progresses.

Figure3: Breakdown of transaction value of property rights exchanges
by type of asset

100%
90%
80%
70%
Non-state-owned
assets60%
50%

State-owned
assets

40%
30%
20%
10%
0%
2005

Source:

2006

2007

(Year)

Nomura Institute of Capital Markets Research, based on Zhongguo Chanquan
Shichang Nianjian 2008.

2. Rules and procedures
We now consider the rules governing property rights exchanges. As we have seen,
the Provisional Rules on the Administration of the Transfer of State-owned Property
Rights in Enterprises are an important piece of legislation specifically governing the
trading of property rights. As the name indicates, these rules lay down a standard
procedure for the transfer and trading of state-owned property rights, and are intended
to ensure that they are regulated more stringently. They do not cover non-state-owned
property rights. As a result, the rules governing the transfer of non-state-owned
property rights vary from exchange to exchange.
These rules apply to the activities of SASACs or enterprises having state-owned
assets in transferring state-owned assets they hold to domestic and foreign juridical
persons, natural persons or other organizations (“transferees”) with compensation(Article 2). However, the transfer of state-owned assets of financial enterprises and
11

See Xinlang Property Rights Exchange Channel et al., Zhongguo Chanquan Shichang
2007niandu Baogao (2008).

Property Rights Exchanges in China

6state equities in publicly listed firms has to be handled in line with the related
regulations of the state (Article 2).
In these rules “state-owned assets of enterprises” refers to interests formed as aresult of input by the state in enterprises in various forms, interests to be shared by thestate as formed by various investments made by state-owned enterprises andenterprises over which the state has control, and other interests recognized, according
to laws, to belong to the state (Article 2). The transfer of state-owned assets ofenterprises has to be conducted openly on property rights exchanges set up inaccordance with the law (Article 4).
The responsibility for formulating the supervision system and methods of tradingof state-owned assets of enterprises in line with the provisions of the related laws oradministrative regulations of the state lies with the SASAC (Article 8-1). The SASAC
is also responsible for making decisions on or approving matters related to the transferof state-owned assets of enterprises to which the state has contributed capital (Article
8-2). Here “enterprises to which the state has contributed capital” are state-owned
enterprises in which the SASAC has taken responsibility as a shareholder instead ofand with the approval of the central or local government.
Next, we consider the procedures governing the transfer of state-owned assets.
First, the transferor enterprise needs to review the transfer in line with the proceduresof internal decision making. In cases where lawful interests of workers are involved,
opinions of the workers’ general meeting of the enterprise whose property rights are to
be transferred have to be solicited, and matters related to the re-employment andredeployment of workers have to be discussed and adopted by the workers’ general
meeting (Article 11).
After the matters related to the transfer have been decided, the transferor has toverify the assets and capital, compile a balance sheet and list of assets to betransferred, and entrust accounting firms to conduct an audit (Article 12). After theaudit, the transferor has to appoint an asset evaluation agency to carry out an asset
evaluation. The evaluation report serves as a reference for the transfer price. If, in thecourse of trading the property rights, the trading price is less than 90% of theevaluation result, trading is suspended and does not resume until the consent of therelated authorities has been obtained (Article 13).
Next, the transferor has to entrust the property rights exchange to publish thebulletin of the transfer of property rights in economic or financial newspapers issued
publicly above the province level and on the websites of property rights exchanges
and solicit transferees in an extensive manner. The period for publishing the bulletinof the transfer of property rights is 20 working days (Article 14). When solicitingtransferees, the transferor may require transferees to meet certain conditions regarding
qualifications, business reputation, operational conditions, etc (Article 15). In cases
where the transferee is a juridical person, natural person or other organization fromforeign countries, Hong Kong, Macao, or Taiwan, the transferee has to conform to theprovisions of the Regulations on the Directions of Foreign Investment released by theState Council and other related regulations (Article 16).

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Nomura Journal of Capital Markets Spring 2009 Vol.1 No.1

In cases where two or more transferees are identified from the public solicitation,
the transferor consults with the property rights exchange on this and chooses auction
or tendering in consideration of the actual situation of the property rights to betransferred (Article 17). Transfer by negotiation or negotiated transfer may be used incases where only one transferee is identified through public solicitation or whereapproval from the SASAC has been obtained in line with the related regulations(Article 18). Whichever type of transfer is used, the transferor and transferee have tosign a contract of property rights transfer once the transaction is complete. As well as
the names and addresses of both parties and basic information about the property
rights being transferred, the contract has to include a plan for re-employing or
redeploying workers affected by the transfer. In 2007, 52.3% of property rights
transfers were negotiated transfers, 23.5% auctions, and 7.0% tenders, with othertypes accounting for the remaining 17.2%12.
These are the rules governing state-owned property rights. As we have seen, therules governing the trading of non-state-owned property rights vary from place toplace. In Beijing, for example, the Rules Governing the Administration of Trading in
Property Rights in Beijing City (in force since January 2002 and amended in June
2005) cover such things as transfer procedures, auditing and asset evaluation, types oftransfer (auction, tender and negotiated transfer), and the contents of transfer contracts.
As we have seen, the transfer of state-owned assets of financial enterprises isgoverned by central government rules, with the Ministry of Finance publishing draft
Provisional Measures on the Transfer of State-owned Property Rights in Financial
Enterprises in 2007. “The transfer of state-owned property rights in financial
enterprises” is the transfer of state-owned equity in institutions such as state-ownedbanks, securities houses, and insurance companies. According to the draft, the transfer
of property rights in unlisted state-owned financial institutions has to take place on aproperty rights exchange, with proper information disclosure, solicitation oftransferees, and auctions or tenders13.

IV. Remaining challenges and future developments
1. Remaining challenges
Finally, we consider the remaining challenges facing property rights exchanges andlikely developments.
As far as the challenges that face property rights exchanges are concerned, one key
question is whether they are able to allocate resources efficiently. In this regard, weneed to remember first of all the role played by local governments. As we havementioned, government has been closely involved with property rights exchanges ever12

13

See Yangzi River Basin Regional Property Rights Common Market et al., Zhongguo
Chanquan Shichang Nianjian 2008.
Based on media reports.

Property Rights Exchanges in China

8

since they were established. Most exchanges have close ties with their local financeand technology departments, and their senior officials also tend to come from local
government or state-owned enterprises14. Hence the continuing pernicious influenceof local government on the property rights exchanges’ operations.
And the need to improve the situation by, for example, fully implementing theProvisional Rules on the Administration of the Transfer of State-owned Property
Rights in Enterprises to strengthen the exchanges’ market mechanism. One way ofstrengthening the exchanges’ market mechanism and eliminating their dependence on
the public purse would be to convert them to joint stock companies.
Next, there is the problem that not all the exchanges are regulated by the same
regulator or governed by the same set of rules. As of 2007, 55% of the exchanges
were regulated by a SASAC, 22% by a local finance department, and the remaining
23% by some other body 15 . And, even in the majority of cases (i.e., where an
exchange is regulated by a SASAC), the regulator is not responsible for regulating the
40% of transactions that do not involve state-owned property rights. As we have seen,
there are no standard regulations for non-state-owned property rights comparable to
the Provisional Rules on the Administration of the Transfer of State-owned Property
Rights in Enterprises. It has therefore been proposed that the exchanges should set up
their own association and that this should act as a self-regulating body16. Nonetheless,we suspect that local governments will have a vested interest no matter what approachis adopted. Therefore a lasting solution is unlikely to be found soon.
Third, the fact that property rights exchanges are located all over the country
means that the market is divided. Although, as we have seen, there are more than 200
exchanges, most of the trading takes place on a minority of regional markets andproperty rights exchanges. On most of these exchanges trading is for small amounts.
We therefore think that many are likely to disappear in one way or another.
However, there is little cooperation among those regional markets where most of
the trading takes place. As a result, the market is divided on a regional basis. In thisconnection, it is perhaps worth pointing out that 79.1% of property rights transactionsin 2007 were within the regions where property rights exchanges are located 17 .
Another point worth mentioning is that restricting trading in the property rights ofcentral-level state-owned enterprises to only four designated exchanges inhibits freecompetition among the exchanges18.
This may have reduced the efficiency of China’s property rights exchanges as awhole. We therefore think the exchanges need to be reorganized. At the moment, theChinese authorities appear not to have decided whether this reorganization should beinstigated by themselves or driven by market forces. One measure that was announced
in February 2008 was that the four designated property rights exchanges that trade theproperty rights of central-level state-owned enterprises would be required to disclose
14
15
16
17
18

9

See Zhongguo Chanquan Shichang 2007niandu Baogao.
See Zhongguo Chanquan Shichang Nianjian 2008.
See Zhongguo Chanquan Shichang 2007niandu Baogao.
See Zhongguo Chanquan Shichang Nianjian 2008.
See Zhongguo Chanquan Shichang 2007niandu Baogao.

Nomura Journal of Capital Markets Spring 2009 Vol.1 No.1

information on the transfer of property rights in central-level enterprises
simultaneously. This should reduce the inefficiency caused by the regional division of
the property rights market.
Fourth, liquidity has been affected by some of the trading rules. Under the rules of
1998, property rights exchanges are not allowed to trade standardized products on acontinuous basis. Similarly, it is difficult to sell property rights at below theirvaluation price. These shortcomings will have to be addressed if the property rights
exchanges are incorporated in multi-level capital markets.
Fifth, illegal practices can still be observed. In some cases, state-owned assets are
sold for less than they are worth to associates of the transferors by not following theproper procedure for valuing assets or by not disclosing information properly. In othercases, property rights are actually sold outside an exchange by negotiation eventhough the formal procedures for selling them on a property rights exchange havebeen followed. This happens because transferors can offer terms that exclude otherbidders by taking advantage of the fore-mentioned rule that permits them to requiretransferees to meet certain conditions19. Such practices need to be banned as they not
only prevent resources from being allocated optimally but reduce fiscal revenue.

2. Future developments
Next, we consider the direction in which China’s property rights exchanges arelikely to develop. The first likely development, in our view, is a widening of the rangeof products they are allowed to trade. As we have already seen, trading in state-owned
property rights is likely to account for an increasingly small proportion of theirbusiness. The exchanges will therefore have to create other business opportunities ifthey are to have a long-term future.
Two such possible opportunities are (1) trading in carbon emission credits, forestry
rights and mining rights, and (2) small business finance. As we have alreadymentioned the establishment of emissions trading exchanges in China, we now
consider the possibility that China’s property rights exchanges might become involvedin small business finance.
Like Japan, China has had to contend for many years with the problem that small
businesses have only a limited access to capital. It will therefore be interesting to see
whether China’s property rights markets will be able to function as a financing
platform for such businesses.
Companies have two ways of raising capital on property rights exchanges: byeither (1) increasing their capital or (2) selling property rights. In 2004-07 they raised
RMB70.0 billion using the former method and RMB800.0 billion using the lattermethod. In this connection, it is perhaps worth mentioning that this is roughly 70% of
the RMB1,136.1 billion that companies raised on the A share markets by means of

19

Based on interviews with market participants.

Property Rights Exchanges in China

10

IPOs and capital increases during this period 20 . We think that the property rights
exchanges will probably become more closely involved with both private equity firms
and the diversification of capital markets in raising capital.
Private equity firms currently face the problems of gathering information and of
exiting their investments21. However, property rights exchanges enable them to (1)find suitable investments (by providing them with information about enterprises thatare trying to sell property rights) and to (2) sell rights in companies they have invested
in. Similarly, property rights exchanges enable enterprises that wish to sell properties
to attract strategic investors and raise capital at the same time. As it happens, theShanghai United Assets and Equity Exchange now plays an important role in mergers
and acquisitions as well as in restructuring Chinese industries and financing small
businesses22. The property rights exchanges therefore have the makings of successful
private equity markets.
Next, we consider the role that the property rights exchanges could play in creating
multi-layer capital markets. In fact, the bulk of the trading on a number of property
rights exchanges has already shifted from real assets such as plant and equipment tocorporate equity. As a result, these exchanges now share some of the features ofcapital markets 23 . Judging by comments from the CSRC, however, the Chinese
authorities have yet to include the property rights exchanges in their plans to create amulti-layer capital market. The chairman of the CSRC, Dr Shang Fulin, has beenreported as saying that this multi-layer securities market will comprise (1) a mainboard, (2) a secondary board (for small and medium-sized companies), (3) a (still tobe established) Growth Enterprise Board (for start-ups), and (4) an over-the-countermarket. He did not mention the property rights exchanges, although that may be partly
because the CSRC is not responsible for regulating them.
At the moment, there is a considerable gap between China’s capital markets and its
property rights markets. Although both developed as a result of the reforms to China’s
state-owned enterprises, the property rights exchanges are still largely regionallybased whereas the capital markets operate at a national level. The capital markets are
regulated mainly by the CSRC whereas the property rights exchanges are regulated
mainly by the SASACs. Also, as we have already seen, there is a clear demarcationline between the capital markets, which trade equities and bonds, and the property
rights markets, which do not trade standardized packaged products and do notnormally trade on a continuous basis.
Therefore, if the property rights exchanges are to be incorporated in a multi-layer
capital market, some regulatory adjustment will probably be required as well as
solutions to the aforementioned challenges.

20
21
22

23

See Xu (2008).
See Jingu and Kamiyama (2008).
See Cai, Minyong, Simu Guquan Touzi Yu Zhongguo Chanquan Shichang de Xinjiyu(Private Equity Funds and New Opportunities for China's Property Rights Market), China
Beijing Equity Exchange.
See Xu (2008).

11 Nomura Journal of Capital Markets Spring 2009 Vol.1 No.1

That said, some of the property rights exchanges have already begun to trade hightech stocks. A State Council document on the development of China’s high-techindustry mentions the role of the property rights exchanges in the trading of unlisted
high-tech companies and suggests to us that the trading of unlisted and privately
issued stocks in government approved high-tech parks has a certain legal basis24. Also,
we think that a number of property rights exchanges would like to use this trading of
high-tech stocks as a springboard for engaging more closely with the capital markets25.
One recent development was the establishment in September 2008 of the Tianjin
Equity Exchange Center for trading in unlisted stocks. Another, as we have seen, wasthe establishment in 2003 of the Zhongguancun Technological Property Rights
Exchange in Beijing. Thus far, these exchanges have avoided falling foul of the law
by restricting their equity trading to noncontinuous trading in shares in companies
with no more than 200 shareholders (i.e., privately placed shares) 26 . Furthermore,some of the exchanges now offer record-keeping services such as acting as a transfer
agent27.
We need to compare the trading of unlisted shares on the property rights exchanges
with that on other markets. Stocks that are delisted from the Shanghai and Shenzhen
stock exchanges are traded on an over-the-counter share transfer system established in2001 and commonly known as the “Third Board.” In other words, unlisted andpublicly issued stocks are traded on the Third Board. The New Third Board market
established in the Zhongguancun Science Park in 2006 is an over-the-counter market
for unlisted and privately issued high-growth high-tech stocks. In other words, the
New Third Board markets trade unlisted and privately issued stocks, although themethod of trading is different from that on the property rights exchanges. To that
extent, the functions of the property rights exchanges (e.g., the Tianjin Equity
Exchange Center) and the New Third Board markets overlap.
We therefore need to consider not only the main board, a secondary board for small
businesses, a (still to be established) Growth Enterprise Board, and an over-thecounter market but also (some of the functions of) the property rights exchanges whenit comes to creating a multi-layer capital market in China. The issue as far as unlisted
stocks are concerned will be how to demarcate between the over-the-counter market
and the property rights exchanges, whether to combine the two, or whether to create a
new market. However, the situation is already quite complicated, with opinion and

24

25
26

27

According to China's amended Securities Law (Article 10), "publicly issued securities" areeither (1) securities issued to an unspecified group of investors, (2) securities issued to a
specified group of more than 200 investors, or (3) securities issued in some other way as
specified in laws and administrative regulations.
See Zhongguo Chanquan Shichang 2007niandu Baogao.
The Tianjin Property Rights Exchange is a shareholder of the Tianjin Equity Exchange
Center. Also, we understand from interviews with market participants that the shares
traded on the Zhongguancun Technological Property Rights Exchange cannot be divided
into very small amounts and that transactions are ultimately negotiated by buyers andsellers. This suggests to us that trading complies with the three principles of "nondivisibility," "non-continuity," and "non-standardization."
See Zhongguo Chanquan Shichang 2007niandu Baogao.

Property Rights Exchanges in China

12

regulatory powers divided among those involved. We expect a clearer sense of
direction will emerge as time passes.

《References》
Inoue, Takeshi, "Tasoutekina Shijou no Kouchiku o Mezasu Chuugoku Kabushiki Shijou"(China's Equity Markets in Search of a Multi-Layer Structure), Kikan Chuugoku Shihon
Shijou Kenkyuu, 2007 summer edition, Tokyo Club Foundation for Global Studies (inJapanese).
Jingu, Takeshi, and Tetsuya Kamiyama, "China's Private Equity Market," Nomura CapitalMarket Review, Autumn 2008, Vol. 11, No. 3.
Jingu, Takeshi, and Suiyo Ri, "'Ko-On Taisei' ka de Kasoku Suru Shijou Keizai Ikou"(China's Accelerating Transition to a Market Economy under the Hu-Wen Administration),
Chiteki Shisan Souzou, 2003, No. 6, Nomura Research Institute (in Japanese).
Nomura Institute of Capital Markets Research, Chuugoku Shouken Shijou Taizen(Compendium of Chinese Securities Markets), Nihon Keizai Shimbunsha, December 2007 (inJapanese).
Yangzi River Basin Regional Property Rights Common Market et al., Zhongguo Chanquan
Shichang Nianjian 2008 (Yearbook of China's Property Rights Market 2008), Shanghai
Academy of Social Sciences, 2007 (in Chinese).
Liu, Jie and Xueling Wei, "Woguo Chanquan Jiaoyi Shichang de Xianzhuang Fenxi" (Studyof Current State of China's Property Rights Market), China Securities Regulatory
Commission Research Center, 2007 (in Chinese).
Ma Xiaohui, Jing Gao, Jingzhong Zhang, and Hongmei Chen, "Zhongguo Jishu Chanquan
Jiaoyi Shichang Yanjiu" (Study of China's Technological Property Rights Market), China Soft
Science, No. 2, 2003 (in Chinese).
Ren, Shengli, "Zhongguo Chanquan Shichang 20 nian 10 jian Dashi" (Ten Most Important
Events in the 20-year History of China's Property Rights Market), Chanquan Daokan, August
2008 (in Chinese).
Shanghai Guozi, "Zhongguo Chanquan Shichang Fazhan 20 nian Huigu" (Twenty Years ofChina's Property Rights Market in Retrospect), August 2008 (in Chinese).
Xinlang Property Rights Exchange Channel et al., Zhongguo Chanquan Shichang 2007niandu
Baogao (China's Property Rights Market Report, Fiscal 2007), 2008 (in Chinese).
Xu, Zhijiong, Woguo Chanquan Shichang de Gongneng Jiexi ji Zhanlüe Dingwei (Analysis
and Strategic Significance of China's Property Rights Market), Zhongguo Chanquan Shichang
Nianjian 2008 (Yearbook of China's Property Rights Market 2008), Shanghai Academy ofSocial Sciences (in Chinese).

13 Nomura Journal of Capital Markets Spring 2009 Vol.1 No.1