There has been a lot of talk about the development of a link between the Shanghai and Hong Kong stock exchanges. The project which gives foreigners more access to Shanghai’s market is scheduled to premier next week on November 17th. The premiere of this link is a key step in the process of China becoming a country with internationally open markets. Investors from all over the world will now be able to make limited amounts of investments in the Shanghai exchange through Hong Kong.
The level of trading that will occur is still going to be highly regulated. Trades will only be completed by those with Hong Kong brokerage accounts and there will only be access to a limited number of Chinese companies (those listed on either the SSE 180 or 380 index). Brokers out of Honk Kong will be limited to investing no more than 1% of the exchange’s total market cap. Foreign investors will also be subject to increased taxes on their investments at an additional 10%. Even with these regulations, this development should have a major impact on China and the rest of the world.
China is taking many of the right steps to opening up their markets, but at to be expected not everything will come at once. This is a sign that China should continue to liberalize its markets and control of the Yuan. With the introduction of the Shanghai-Hong Kong link, there has been talk of a similar link between Honk Kong and Shenzen which has China’s smaller exchange. The creation of this original link should bring an inflow of money that could potentially help China’s slowing growth, but more importantly it signals a move towards a more open economy in China.
Gismatullin, Eduard, and Kana Nishizawa. “Shanghai-Hong Kong Stock Exchange Link Will Start in a Week.” Bloomberg.com. Bloomberg, 10 Nov. 2014. Web. 11 Nov. 2014. <http://www.bloomberg.com/news/2014-11-10/shanghai-hong-kong-stock-exchange-link-will-start-in-one-week.html>.