A critical step towards the two-way opening up of China’s capital market

Note: The following article is taken from the Chinese-language "Commentaries on International Affairs".

After four years' preparation, the Shanghai-London Stock Connect program opened for trading on Monday in London, a critical step for China in its commitment to further the two-way opening of its capital market. The mechanism, an institutional innovation, provides further proof that Beijing is determined to expand access to its capital market.

The connect, first announced at the seventh China-UK Economic and Financial Dialogue in Beijing in September 2015, allows qualifying listed companies from both sides to issue depository receipts for transactions on each other’s exchanges, offering Chinese investors and companies new channels to 'go global.’

The Shanghai-London Stock Connect launched at the London Stock Exchange on Monday, June 17, 2019. [File Photo: IC]

For example, Huatai Securities was the first Chinese company approved by the UK authorities to issue global depository receipts in London. It’s expected to raise up to 1.69 billion US dollars at the London Stock Exchange, where well-developed institutional investors would be able to provide steady cross-border financing. In addition to Huatai Securities, other qualified Chinese A-share market listed firms can also buy assets abroad via such an arrangement, which is seen as conducive to cross-border mergers and acquisitions.

The mechanism will also help increase the global competitiveness of China’s capital market as it continuously moves to improve its practices in line with its international counterparts. Moreover, the mechanism will also set an example for similar arrangements between China and other countries, such as those participating in the Belt and Road Initiative, helping to speed up the opening-up of the Chinese mainland’s capital market.

From the Qualified Foreign Institutional Investor (QFII) program, to the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect, and now to the cross-border Shanghai-London Stock Connect, all these institutional innovations have demonstrated the effort and sincerity China has had in opening up its capital market to both domestic and foreign investors and companies.

The Shanghai-London Stock Connect also provides important opportunities to international investors and the British capital market. Foreign investors now have more direct access to China’s quality investment targets listed on the Shanghai Stock Exchange. At the same time, the arrangement can also help reinforce the London Stock Exchange’s position as Europe’s largest bourse and help strengthen London’s role as a world leading financial hub against the backdrop of the uncertainty surrounding the UK’s exit from the European Union.

The launch of the Shanghai-London Stock Connect is expected to herald an upgraded golden era of Sino-British relations as officials from both countries began their tenth Economic and Financial Dialogue on the same day, discussing such issues as global economic governance, trade and investment, large-scale project cooperation, financial cooperation, and cooperation in strategic and new areas.