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What are red chip shares? Definition and meaning

Red chip shares, also known as red chip stocks, are the shares of mainland China companies that are listed in the Hong Kong Stock Exchange. These companies are incorporated outside mainland China.

Red chip shares belong to companies that are based in mainland china and are controlled either directly or indirectly by the provincial or municipal governments of the Peoples’ Republic of China.

These companies are listed in the Hong Kong Stock Exchange (HKEx) so that people and entities from around the world can buy and sell their shares. Generally speaking, only Chinese citizens are allowed to invest on mainland China’s stock exchanges.

Red Chip SharesThere were 25 companies with red chip shares in February 2015. The list is growing rapidly. According to HKEx, by the end of June 2015, the number had increased to 138.

The term, which was coined in 1992 by Alex Tang, a Hong Kong economist, who picked the the word ‘red’ because it is the official color of the Communist party.

The Hang Seng China-Affiliated Corporations Index (HSCCI) provides a benchmark of red chips.

Some red chip companies are today household names. For example, Lenovo Group Ltd. is a multinational computer technology giant, headquartered in Beijing in China and Morrisville in North Carolina.

It designs, develops, makes and sells smartphones, tablet computers, personal computers, and other electronic devices. Lenovo products are available across the world and are well known to consumers in North America and Europe.

Hang Seng China Affiliated Corporations IndexFrom February 26th, 1999 to July 20th, 2015, the Hang Seng China-Affiliated Corporations Index increased by 568.02%. (Data Source: Yahoo Finance)