A-Shares and B-Shares are two classes of stocks issued by mainland Chinese companies and traded on the domestic Chinese stock exchanges (Shanghai Stock Exchange and Shenzhen Stock Exchange).
Main Differences between A-Shares and B-Shares
Here are the key distinctions between them, particularly regarding investors and currency:
| Feature | A-Shares | B-Shares |
| Primary Investors | Historically for mainland Chinese citizens. Now also available to foreign investors through programs like QFII/RQFII and Stock Connect. | Historically for foreign investors. Now also open to Chinese citizens with foreign currency accounts. |
| Trading Currency | Traded and settled in Renminbi (RMB or CNY). | Traded and settled in foreign currencies: US Dollars (USD) on the Shanghai Stock Exchange, and Hong Kong Dollars (HKD) on the Shenzhen Stock Exchange. |
| Listing Location | Mainland China stock exchanges (Shanghai and Shenzhen). | Mainland China stock exchanges (Shanghai and Shenzhen). |
The division between these two share classes historically allowed China to manage foreign investment in its domestic stock markets. Although the markets have opened up considerably, particularly A-Shares to foreign investors, the two classes of shares often trade at different prices for the same company, a valuation differential attributed to factors like market segmentation, investor base characteristics, and risk perception.
To fully understand A-Shares and B-Shares, it’s helpful to look at the historical context, the investment mechanisms, and the economic significance of each.
Historical Context and Market Segmentation
The existence of A-Shares and B-Shares is a direct result of China’s gradual and controlled opening of its capital markets in the early 1990s.
- A-Shares (Domestic Market): When the Shanghai and Shenzhen stock exchanges were re-established, A-Shares were created for the domestic retail and institutional investor base. The market was initially a closed system, designed to keep domestic capital within China and shield it from global market volatility.
- B-Shares (Foreign Market Channel): B-Shares were introduced specifically to attract foreign capital without opening up the main A-Share market. They were a separate, ring-fenced channel for international investors to participate in China’s growth.
This regulatory separation created significant price differences:
- A-Share Premium: For many years, A-Shares for the same company often traded at a significant price premium over their B-Share counterparts (sometimes four times higher). This was largely because Chinese domestic investors had limited alternative investment options, leading to an excess demand for A-Shares that artificially inflated their prices.
- Opening of B-Shares: In February 2001, the B-Share market was opened to domestic Chinese citizens who held foreign currency deposits. This reform caused B-Share prices to surge and the A/B price premium to narrow substantially, demonstrating the power of domestic liquidity.
Foreign Investor Access to A-Shares (The New Reality)
The original purpose of B-Shares—as the only channel for foreigners—has been superseded by new mechanisms that provide much broader access to the much larger A-Share market.
The primary pathways for foreign investors to access A-Shares today are:
| Program | Mechanism | Significance |
| QFII / RQFII | Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) schemes. These grant licenses and quotas to select large overseas financial institutions (pension funds, insurers, asset managers) to invest directly in the onshore A-Share market. | They offer the broadest investment scope, including bonds, futures, IPOs, and nearly all A-Shares. Quotas were largely abolished in 2019 to streamline the process. |
| Stock Connect | A mutual market access program connecting the Hong Kong, Shanghai, and Shenzhen stock exchanges. International investors in Hong Kong can trade a defined set of eligible A-Shares (Northbound trading) through their Hong Kong-based brokers. | This is the most popular and flexible channel for general international institutional and retail investors, offering easier access without requiring a separate license or quota for each investor. |
These reforms have made A-Shares the primary focus for foreign investment, rendering the B-Share market increasingly marginal.
The Current State and Significance of B-Shares
Today, the B-Share market is often considered a legacy market, with its significance greatly reduced:
- Smaller Size: The B-Share market is much smaller and less liquid than the A-Share market, with a limited and relatively static universe of companies (fewer than 100 companies have B-Share listings).
- Less Attractive: With the introduction of QFII/RQFII and especially Stock Connect, foreign investors have better, more efficient, and more liquid channels to invest in Chinese equities.
- Diminished Role: The B-Share market is not where new companies are typically listing, and its role as a key barometer of foreign sentiment has been largely replaced by the A-Share market’s performance under the Stock Connect and QFII programs.
In summary, while A-Shares continue to be the main, locally-denominated equity market, B-Shares served a critical historical function by introducing foreign capital to China before the broader opening of the A-Share market was implemented.