UK–Chinese stock markets linked by ‘ground-breaking' scheme

After four years of planning, the London-Shanghai Stock Connect, which allows UK and Chinese companies to sell shares on each others’ stock markets, became a reality on Monday.

The pioneering scheme was formally launched in London at the UK-China Economic and Financial Dialogue by Chancellor of the Exchequer Philip Hammond and Vice-Premier Hu Chunhua.It marks the first time any foreign company will be able to sell its shares in mainland China and "comes as the nominally communist country steps up market deregulation and seeks to better integrate itself into global finance", according to City AM.The arrangement allows Shanghai-listed firms to raise new funds in London while UK institutions are limited to selling existing shares.

A ‘ground-breaking’ bilateral initiative 

"Stock Connect is a ground-breaking initiative, which will deepen our global connectivity as we look outwards to new opportunities in Asia," Mr Hammond said. "London is a global financial centre like no other, and today's launch is a strong vote of confidence in the UK market." The Treasury said that more than 260 of the firms listed in Shanghai are potentially eligible for a second listing in London. Meanwhile UK-listed companies have the opportunity to access capital in China.Catherine McGuinness, City of London Corporation policy chair, said the initiative, “has been one of the most highly anticipated bilateral initiatives in recent years”. 

Scheme will deepen UK-China financial cooperation 

She added, “It could prove to be a game-changer in deepening UK-China financial cooperation and expanding access to China’s capital markets. It means global investors can now benefit from China‘s growth through London, while UK listed companies are able to access Chinese investors directly.”The South China Morning Post commented, "The ground-breaking project, which will enable firms listed in the UK and mainland China to raise funds on each other’s stock market, is seen as a major step for Beijing in its efforts to internationalise its markets.

Beijing keen to open up worldwide investment

"The listing...could open the floodgates for dozens of mainland Chinese firms to raise funds on the European bourse. As the trade war with the US rages, Beijing is keen to open up more investment doors around the world."A plan to link the Shanghai and London markets was first proposed during a visit by Chinese President Xi Jinping to the UK in October 2015.According to the China Securities Regulatory Commission, the arrangement will be of far-reaching significance in expanding channels for cross-border investment and fund-raising, will boost the development of both countries' capital markets, and will encourage development of Shanghai as an international financial hub.  

Depository receipts (DR) will allow foreign buyers to hold stocks

Unlike the existing Hong Kong-Shanghai Stock Connect, which lets investors directly buy stocks on the two markets, the London scheme will only let foreign buyers hold stocks indirectly through instruments called depository receipts (DR).“The listing of DR shares by British firms will offer mainland investors new investment options to diversify their risks,” said Zhang Yulong, chief strategy analyst with China Securities.“As the regulator will take a go-slow approach in approving the issuance of the DR shares in Shanghai, it will not largely dilute existing holdings on the mainland market.”
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