Out-Law / Your Daily Need-To-Know

Out-Law News 1 min. read

Shanghai-Hong Kong stock link programme ‘set to open up China’s capital market’


China has launched what it says is a landmark Shanghai-Hong Kong programme that allows investors to trade on both bourses.

The state-run Xinhua News Agency said the ‘Shanghai-Hong Kong Stock Connect’ initiative, launched on 17 November, “paves the way for a more open capital market” in mainland China.

The programme’s launch “is expected to see billions of dollars in daily cross-border transactions”, Xinhua said.

Under the programme, which caps cross-border investment at 550 billion renminbi (CNY) ($90bn), investors with more than CNY 500,000 ($81,000) in their brokerage accounts will be allowed to trade eligible shares listed on either market through local securities firms or brokers.

According to Xinhua, investors are permitted to buy and sell up to CNY 23.5bn ($3.8bn) worth of stock from a “select list of companies” each day. “Up to CNY 10.5bn ($1.7bn) of that daily quota goes to mainland investors and the rest to Hong Kong,” Xinhua said.

Previously, cross-border investment in the mainland equity market was only allowed under a series of projects such as the qualified domestic institutional investor initiative. “To overcome a major block in the stock connect programme, (China’s) finance ministry and its securities watchdog decided to exempt profits made from the connect programme from taxes from its launch until 16 November 2017”, Xinhua said.

The chairman of the China Securities Regulatory Commission Xiao Gang said the trading link was a “major institutional innovation” in capital markets. Xiao said the move would be conducive to “consolidating the role of Hong Kong as an international financial centre... and speeding up the building of Shanghai as an international financial centre”, to raise the competitiveness of China's overall capital market.

The connect programme is the latest in a series of initiatives designed to open up the Chinese market and encourage regional and international investment. Last September, China's State Council (cabinet) temporarily exempted the China (Shanghai) Pilot Free Trade Zone (FTZ) from restrictions on foreign investment in businesses like shipping, automobiles, civil aviation and infrastructure development.

A total of 1,016 foreign-funded projects worth $5.4bn were launched in the FTZ in the first half of this year. The number “accounted for nearly half of all foreign-funded projects in the city and nearly 20% of projects launched in the zone”, according to the Shanghai Commission of Commerce.

Earlier this year, a blueprint to boost opportunities for Hong Kong’s financial services industry and enhance cooperation with mainland China was unveiled by Hong Kong’s Financial Services Development Council. The Council said its proposals (16-page / 672 KB PDF) were designed to further improve the ‘Closer Economic Partnership Arrangement’ (CEPA), the first free trade agreement between the mainland and Hong Kong that entered into force in January 2004.

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.