The highly anticipated Shanghai-London Stock Connect Mechanism — a further step connecting the Chinese mainland and international capital markets — is taking shape as the central regulator started to solicit public opinion on detailed rules on Aug 31.
Chang Depeng, a spokesman for the China Securities Regulatory Commission, said on Aug 31 that the regulator had started to seek opinions on rules regarding the issuance standards for Chinese Depository Receipts, related regulations for CDR applications, and regulatory arrangements for the issuance of Global Depository Receipts on foreign bourses by listed Chinese companies.
The Shanghai Stock Exchange said in an announcement released on its official website on Aug 31 that domestic blue-chip companies listed on the Shanghai bourse will be encouraged to list in London.
Initiated during President Xi Jinping’s visit to the United Kingdom in October 2015, the Shanghai-London Stock Connect will allow Shanghai bourse-listed companies to sell Global Depository Receipts in the UK and enable London-traded companies to sell CDRs in Shanghai.
Analysts from China Securities wrote in a note that the first companies included in the Shanghai-London Stock Connect are very likely to be from the UK’s FTSE 100 index, focusing on traditional economic sectors such as finance, energy, industry and consumption.
Experts from Guotai Junan Securities wrote in a note that the Shanghai-London Stock Connect will further promote the internationalization of China’s capital market.
With that Chinese investors will be able to invest in overseas products via the local market. A-share listed companies will be able to seek financing from overseas. Companies will also be supported with this mechanism to conduct cross-border mergers and acquisitions.
The Shanghai-London trading program is another major step forward following the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect mechanisms implemented in 2014 and 2016 respectively. By the end of July, capital flowing northbound to the A-share market exceeded 200 billion yuan ($29 billion), which was much higher than the 70 billion yuan capital inflow to Hong Kong contributed by Chinese mainland investors.
However, it might still take some time before the Shanghai-London trading program injects more confidence into the A-share market.
Despite the sluggish performance of the A-share market this year, the international capital market retains a positive outlook of its long-term future.
The London-based industry indicator FTSE Russell said earlier that it would include A shares in September. Once implemented, this will bring to the A-share market a capital inflow of up to $500 billion.