Red Chip

A red chip is stock of a company incorporated and traded on the Hong Kong Stock Exchange and controlled by mainland Chinese shareholders. Companies with red chip stocks are headquartered in Hong Kong and are sometimes managed by executives from Western countries. The concept of a red chip stock began in the early 1990’s. After the improvement in the Chinese economy and easing of interest rates, red chip stocks began to benefit from the ensuing growth. Red chip stocks are conglomerate-like stocks of companies holding numerous assets of provincial or city governments in China. For example, the red chip stock company, Shanhai Industrial, has holdings in over 100 companies in Shanghai. Guangdong Investment, another red chip stock company, manages the commercial endeavors of one of China’s wealthiest provincial governments.

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