The analysis of collusive behavior by large shareholders and managers after China’s shareholder splitting reforms
The main problem of the stock market in China is the share splitting that occurred before 2005. Share splitting means that the stocks held by the sponsors of the companies (the government agencies and legal persons) could not be transacted on the stock market regularly; these kinds of stocks are called non-circulative stocks, and represent about two-thirds of the total. Only the stocks held by small shareholders (they are called circulative stocks, about one third of the total) could be transacted on the stock market. So the situation of “same stocks, but diﬀerent prices and diﬀerent rights” occurs. This kind of transaction system blocked the development of the stock market in China. For example, when the GDP of China increased from 10965.52 billion (RMB) in 2001 to 18308.48 billion (RMB) in 2005, the Shanghai stock index decreased from 2245 points on June 14, 2001 to 998.23 points on June 6, 2005 at the same time.