How to Buy Stock in China

The sustained Chinese economic boom has made a lot of investors wonder how they can invest in Chinese stocks and buy into all that growth. Like most foreign stock exchanges, direct trading is impossible for most foreign residents. The first necessary step is to become at least a foreign resident with a valid visa. After that, doing business on the Hong Kong Exchange is relatively easy, but that first step is still quite daunting.

Difficulty: Moderately Challenging

Instructions

1. Open a suitable trading account with a broker that does business with Chinese stock markets, such as the Shanghai Stock Exchange. Most of the major US brokerages, such as Merrill Lynch, can provide this service. However, mainland Chinese stock exchanges categorize stocks as Class A or Class B, and foreigners can only trade in Class B stocks. Class B stocks are especially risky and many are dogs. It is best to skip directly to Step 2.

2. Apply for and get at least a temporary residency visa for Hong Kong or Macau. Only residents of Hong Kong or Macau are allowed to trade on the Hong Kong Exchange, so if you are not already in possession of a visa, you will need to get one. This will require at least a valid passport, criminal background check, and proof that you are in good health.

3. Open an account with a brokerage that does business on the Hong Kong Stock Exchange. Most (but not all) of the best companies in China are also traded on this exchange, and there are none of the limitations that force investors to put money into highly risky "B" stocks. Start by investigating the list of brokers that do business there and picking one that suits your needs. A partial list is provided under Resources.

4. Download and complete either the Individual or Joint Investor Form, as well as the Debit Authorization Form. Regardless of who you choose as your middleman for trading in Hong Kong, you will need to submit these standard forms, in addition to what your broker requires to open an account. However, the good news is that if you have a valid visa, that is the only major document required to file these forms. Processing will take 2-3 weeks by mail, or mere hours if filed in person.

5. Transfer funds from your home bank to the Hong Kong account.

Tips & Warnings

• For most investors who are not already doing business in Hong Kong and have no family ties there, the bother of getting a visa just to trade stocks will likely be too much. An alternative option is to invest in a Chinese index fund, such as the Golden Dragon Portfolio cited under References. This is also a means of investing in China's best companies, albeit indirectly.

References

• Slate on Trading in China
• Golden Dragon Portfolio

Resources

• Shanghai Stock Exchange
• Hong Kong Exchange Brokers
• Hong Kong Exchange Application Forms

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