China Market Glossary: Key terms one should know about Chinese economy, latest market selloff

Amid weak economic recovery in China, global hedge funds are aggressively selling Chinese stocks amid heightened concerns over the country’s property sector. This has led to an overall selloff in China’s stock market, leading to the Hong Kong’s Hang Seng index plunging over 3 per cent, dragged by basic materials and consumer cyclical stocks. Yuan fell toward a 16-year low as weak market sentiment weighed on the currency index.

Earlier this week, a Goldman Sachs report showed that all types of stocks were sold, but A-shares, those listed in the domestic stock market, led the sell-off, comprising 60 per cent of it. “Hedge funds have net sold Chinese stocks in eight of the last ten sessions on the prime book through 8/14,” said the bank, adding its clients divested both their long and short positions.

This is the largest net selling in Chinese equities over any 10-day period since October 2022 and one the highest moves in the past five years. Goldman Sachs, as one of the biggest providers of lending and trading services through its prime brokerage unit to investors, is able to track hedge funds’ investment trends, according to a report by news agency Reuters.

Global investors have raised concerns about China’s economy as a confluence of recent events has darkened its economic outlook. To understand the China market sell-off in a better way, here is a glossary of terms one should know around Chinese markets:

Beijing Stock Exchange: The stock exchange was established in September 2021 in Beijing, China. It is one of the three main stock exchanges operating in mainland China.

PBOC: The People’s Bank of China(PBOC) is China’s central bank and is in charge of China’s monetary policy.

OEM: Original equipment manufacturer (OEM) refers to a company that manufactures a product following its client’s design and request, which ultimately will be branded by its client.

A-Share: A-share refers to the stock shares of Chinese companies, that are denominated in Renminbi(RMB) and traded on the stock exchanges in mainland China.

Red chip: Red Chip refers to the stocks of mainland China-based companies incorporated outside mainland China and listed on the Hong Kong Stock Exchange. Usually, the majority shares of the companies are controlled directly or indirectly by a government body in mainland China.

Foreign-invested enterprises (FIEs): Foreign-invested enterprises are business entities registered in mainland China wholly or partially owned by foreign shareholders.

Shanghai Stock Exchange (SSE): Shanghai Stock Exchange, or SSE, is a stock exchange based in Shanghai, China, and is one of the three major stock exchanges operating in mainland China.

Negative List: The Negative List refers to the negative list for Foreign Direct Investment (FDI) in China, which is a special administrative measure for access to foreign investments. 

It is issued and updated by National Development and Reform Commission of the People’s Republic of China and Ministry of Commerce of the People’s Republic of China (MOFCOM), providing a detailed list of industries in mainland China that are restrictive or prohibitive to foreign ownership.

CAS: Chinese Accounting Standards (CAS) for business enterprises, also known as the Chinese Generally Accepted Accounting Principles (Chinese GAAP), are the accounting rules used in mainland China. In general, they are consistent with the International Financial Reporting Standards (IFRS) with some differences.

Updated: 17 Aug 2023, 04:46 PM IST