What Is Red Chip Stock?

The concept of red chips was born in Hongkong in the early 90s.

Blue chips have become synonymous with blue chip stocks.

Some of the red chips which have good prospects for development are also elected as the constituent stocks of Hang Seng Index, so they also have the status of Phoenix.

With the mainland going to Hong Kong in succession, some people have made a more precise definition of red chips. They must be registered in Hongkong by the parent company in Hong Kong. The Chinese enterprises that are bound by the laws of the Hongkong are called red chips, and the companies are registered in the mainland. They only borrow from the capital raising enterprises in the capital market, and also called "H-shares".

But generally speaking, Hong Kong chips are widely used as the names of Chinese enterprises listed in Hong Kong.

The most famous red chips in Hongkong include CITIC Pacific, Guangdong investment, China Merchants Haihong, Shanghai industries, and Shenzhen Industrial Holdings and Beijing holdings which were listed recently.

The theory of red chips only adapts to the Hongkong stock market.

There are still some disputes about the specific definition of red chips.

There are two main points.

One thinks that it should be differentiated according to the scope of business.

If the main business of a listed company is in mainland China, and most of its earnings come from the business, the shares that are registered in China and listed in Hongkong are red chips.

The red chips index compiled by Bloomberg, an international information company, is selected according to this standard.

Another view is that it should be divided according to the number of interests.

If the majority of shareholders' rights and interests of a listed company come directly from mainland China or have a mainland background, that is, they are controlled by Chinese capital, then the stock registered outside China and listed in Hongkong will belong to the list of red chips.

In April 1997, when Hang Seng index service company started to compile the Hang Seng red chips index, the red chips were drawn according to this standard.

Usually, the stocks of these two groups are regarded as red chips by investors.

The early red chips were mainly formed by some Chinese companies after the acquisition of small and medium-sized listed companies in Hongkong, such as "CITIC Pacific" and so on.

The emergence of red chips in recent years is mainly caused by the restructuring of some Window Company in the mainland and the listing of them in Hongkong, such as "Shanghai industry" and "Beijing holding company" after listing in Hongkong.

Red chips have become an important channel for mainland enterprises to raise funds in the international capital market except B shares and H shares.

The rise and development of red chips has also had a very positive impact on the Hongkong stock market.

From the end of 1993 to the end of June 1997, the fund raised by the red chips company through initial issue and capital increase rights issue was US $11 billion 550 million.

From 1997 to June, the total stock financing of the Hongkong stock market was about HK $143 billion 300 million, of which HK accounted for 23.8% of the red chips.

Later, some people made a more rigorous definition of red chips: they must be registered by the parent company in Hong Kong, and Chinese funded enterprises that are legally bound by Hongkong and listed in Hongkong are called red chips.

Usually, the above mentioned stocks are regarded as red chips by investors.

H shares refer to the "H" registered in the mainland of China and the foreign capital listed in Hongkong, which is the initials of Hongkong English HongKong.

It can be seen that red chips and H-shares are listed in Hongkong. The fundamental difference is that the red chips are registered and managed overseas, belonging to Hongkong companies or overseas companies; H shares are registered and managed in the mainland and belong to mainland China companies.

The main differences between red chips and H-shares and investment decisions are:

The shares of Hong Kong chips can all be listed and circulated. Some of the shares of state-owned H-shares can not be listed. After the issuance of new shares, the red chips may have greater flexibility and space, and the risk of H-share issuance may be higher and the time may be relatively longer.

The management of stock ownership of red chips may be the same as those of overseas companies. Management can enjoy all the rights and interests of all the subscription rights; but H shares are different, management does not really own the stock option of listed companies, even if it owns the simulated stock option.

When issuing convertible bonds and other bonds, the red chip companies do not have to comply with the mainland's legal procedures and conditions. However, H-shares require the mainland's legal procedures and conditions, and approved by the relevant state departments.