Chinese Stock Markets

What this book actually teaches

Dongwei Su's book is an academic examination of the structural features, pricing behavior, and market microstructure of China's equity markets — primarily the Shanghai and Shenzhen exchanges — with a focus on understanding why Chinese stocks trade differently from developed-market equities. The core argument is that China's dual share structure (A-shares for domestic investors, B-shares and H-shares for foreign investors), restricted capital flows, and heavy state ownership create market dynamics that standard Western asset pricing models poorly explain.

The book covers several interconnected topics. The A-share versus B-share premium puzzle is central: for much of the period Su studies, the same underlying company's A-shares (restricted to domestic Chinese investors) traded at substantial premiums to B-shares (accessible to foreign investors), which is the opposite of what standard theory would predict given domestic investors' presumably inferior information access and constrained alternatives. Su attributes this to liquidity differences, the scarcity of domestic investment alternatives (capital controls meant Chinese retail investors had limited options outside of equities), and speculative demand among retail participants who treated stocks as the only viable savings vehicle.

The book also covers IPO pricing and long-run underperformance (Chinese IPOs showed the same underperformance pattern documented in US markets), earnings quality and state-owned enterprise behavior, and the influence of government policy announcements on market movements — where the state's dual role as regulator and controlling shareholder creates conflicts that affect price discovery.

As academic finance, the book is methodologically sound but narrow. It was written during a period (late 1990s/early 2000s) when China's markets were less developed than they are today, and many of the structural features Su analyzes — particularly the B-share restrictions and A/B premium — have since been substantially reformed by the QFII program, Stock Connect, and progressive opening of A-shares to foreign investors. The specific empirical findings are therefore of historical rather than current practical relevance.

For investors seeking current guidance on Chinese equity markets, this book is outdated. For researchers or sophisticated investors wanting to understand the historical institutional logic of China's market structure — which still shapes current behavior even after reform — it provides useful foundational context.

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About Dongwei Su

Read more from Dongwei Su and explore the full bibliography on ClearValue Books.