The history of China's Stock Market is elaborate and complex, reaching back to the 19th century. The entire market is based around the Shanghai Stock Exchange, but tied directly to two other exchanges in Hong Kong and Shenzhen. The establishment of the stock exchange took a long time, as did the growth in the business trading with foreign markets. At times in history, the exchange has been closed for reasons including war.
Following the First Opium War, the Treaty of Nanking in 1842 established an area in Shanghai known as the International Settlement. This development prompted the emergence of foreign markets in the area. This culminated in in the introduction of securities trading in the late 1860s. In June 1866, the first share list began to appear prompting a number of banks and joint-stock companies to be formed. This was coupled by an interest in diversification for investors and trading houses.
During the late 1880s, the Chinese mining industry boomed. In 1891, the Shanghai Sharebrokers' Association was established, creating China's first stock exchange. Most of the shares were supplied by local companies and banks took the opportunity to dominate the majority of the private shares. By the turn of the century, Hong Kong and Shanghai banks had consolidated the majority of the trading shares from foreign bases. In 1904, the Association moved to establish another exchange in Hong Kong, expanding the grip of the Chinese market in the world economy.
In 1920, the Shanghai Securities and Commodities Exchange was established. This was followed the next year by the Shanghai Chinese Merchant Exchange. In 1929, the markets combined and officially formed the Shanghai Stock Market. Rubber became on of the prime stocks at the same time as a number of foreign companies, such as those from Japan, began to consolidate its economic control of the Chinese Stock Market. In 1941, the Japanese military took control of Shanghai and the stock market ceased operation. It reestablished itself shortly after the war, but was closed in 1949 during the Communist Revolution.
The Cultural Revolution ended in the early 1970s and Deng Xiaoping took power over the nation. China reopened itself to foreigners in 1978. This caused a number of companies to begin trading securities with foreign firms again prompting a surge in economic reform and continued development of business. A socialist market economy was established during the 1980s. This ultimately led to the Shanghai Stock Exchange to be reopened in 1990. At the same time, China opened a secondary exchange in Shenzhen aimed more at technology and government securities.
In 1997, the Hong Kong Stock Exchange was implemented into the Chinese system. Due to the fact that Hong Kong had long been a British protectorate, special laws were established for the area that made the Hong Kong Stock Exchange more privatized than either Shanghai or Shenzhen. Both the Shanghai and Hong Kong Stock Exchanges are located very close to each other and aid each other by trading divergent securities. The most notable concept of the Hong Kong location is that, unlike the other two exchanges, Hong Kong is a for-profit enterprise.