H-share and Red chips

In what ways are H-share companies different from red chips?

 

“H-share companies” refer to state-owned Chinese enterprises with its shares listed in Hong Kong.

H-share companies are companies incorporated in the People's Republic of China and approved by the China Securities Regulatory Commission for a listing in Hong Kong. Shares in these companies are listed on the Stock Exchange, subscribed for and traded in Hong Kong dollars, or other currencies, and referred to as H shares. After finding its way into the Listing Rules, the term H share has been accepted and is widely used in the market. The letter H stands for Hong Kong.

 

“Red-chip companies” refer to companies incorporated outside the People’s Republic of China (“PRC”) where they are listed in Hong Kong and at least 30% of their shareholding is held directly by either:

 

(i)        Chinese entities, i.e. state-owned organisations, provincial or municipal authorities in PRC; or

 

(ii)   Listed or privately owned Hong Kong companies (Hong Kong or overseas incorporated) which are controlled by Chinese entities.

 

A red chip company is a company that has at least 30 per cent of its shares in aggregate held directly by Mainland China entities, or indirectly through companies controlled by them, with the Mainland China entities being the single largest shareholders in aggregate terms. Alternatively, a company would be considered  a red chip company if less than 30 per cent but more than 20 per cent of its shares are held  directly or indirectly by Mainland China entities and there is a strong influential presence of Mainland China-linked individuals on the company's board of directors. Mainland China entities include state-owned enterprises, and entities controlled by provincial and municipal authorities.

The most important difference between a red chip company and an H-share company is that a red chip company is not Mainland-registered.